FINAL MANAGEMENT REPORT - Baviaans Municipality

FINAL MANAGEMENT REPORT 

BAVIAANS MUNICIPALITY 

30 June 2011

MANAGEMENT REPORT 

BAVIAANS MUNICIPALITY 

30 June 2011 

Management Report of Baviaans Municipality 

CONTENTS 

Introduction 3 

The Auditor-General’s responsibilities 3 

The accounting officer/authority’s responsibilities 4 

Meetings with oversight bodies and those charged with governance 5 

Matters relating to the auditor’s report 6 

Conclusion on reporting on predetermined objectives 18 

Specific focus areas 25 

Significant deficiencies in internal control 27 

Ratings of detailed audit findings 36 

Conclusions 36 

Summary of detailed audit findings 37 

Detailed audit findings contained in annexures A – C 57 

2


FINAL MANAGEMENT REPORT TO THE ACCOUNTING OFFICER ON THE AUDIT OF THE 

BAVIAANS MUNICIPALITY FOR THE YEAR ENDED 30 JUNE 2011 

INTRODUCTION 

1. This management report includes audit findings arising from the audit of the financial 

statements, reporting on predetermined objectives and compliance with laws and regulations 

for the year ended 30 June 2011 which were communicated to management and includes 

their response to these findings. The report also includes information on the internal control 

deficiencies that were identified. Addressing these deficiencies will assist in ensuring an 

improvement in the audit outcomes. 

2. The management report consists of an executive summary and detailed audit finding which 

are contained in annexure A, B and C. 

THE AUDITOR-GENERAL’S RESPONSIBILITIES 

3. As required by section 188 of the Constitution of the Republic of South Africa, 1996 (Act No. 

108 of 1996) and section 4 of the Public Audit Act of South Africa, 2004 (Act No. 25 of 2004) 

(PAA), our responsibility is to express an opinion on the financial statements and to report on 

findings relating to our audit of the report on predetermined objectives and compliance with 

material matters in laws and regulations applicable to the entity. Our engagement letter sets 

out our responsibilities in detail. These include the following: 

 

 

 

 

Performing procedures to obtain audit evidence about the amounts and disclosures in the 

financial statements, the report on predetermined objectives and compliance with laws 

and regulations applicable to the entity. The procedures selected depend on our 

judgement, including the assessment of the risks of material misstatement of the financial 

statements, the report on predetermined objectives and material non-compliance with 

laws and regulations. 

Considering internal controls relevant to the entity’s preparation and fair presentation of 

the financial statements, the report on predetermined objectives and compliance with 

laws and regulations. 

Evaluating the appropriateness of accounting policies used and the reasonableness of 

accounting estimates made by management. 

Evaluating the appropriateness of systems and processes that ensure the accuracy and 

completeness of the financial statements, the report on predetermined objectives and 

compliance with laws and regulations. 

4. Because of the test nature and other inherent limitations of an audit, we do not guarantee the 

completeness and accuracy of the financial statements or the report on predetermined 

objectives or compliance with all applicable laws and regulations. 

5. Having formed an opinion on the financial statements, we may include additional 

communication in the auditor’s report that does not have an effect on the auditor’s opinion. 

These may include: 

 

 

an emphasis of matter paragraph to draw users’ attention to a matter presented or 

disclosed in the financial statements which is of such importance that it is fundamental to 

their understanding of the financial statements 

an additional matter 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. 

3


THE ACCOUNTING OFFICER’S RESPONSIBILITIES 

6. The accounting officer’s responsibilities are set out in detail in the engagement letter. These 

include the following: 

 

 

 

 

 

 

 

 

 

The preparation and fair presentation of the consolidated financial statements in 

accordance with the South African Standards of Generally Recognised Accounting 

Practice (SA Standards of GRAP). 

Planning, monitoring of and reporting on performance against predetermined objectives. 

Review and monitoring of compliance with laws and regulations and disclosing known 

instances of non-compliance or suspected non-compliance with laws and regulations. 

Designing, implementing and maintaining proper record keeping and internal controls 

necessary to enable the preparation of financial statements and the report on 

predetermined objectives that are free from material misstatement whether due to fraud 

or error, and compliance with laws and regulations. 

Designing and implementing formal controls over IT systems to ensure the reliability of 

the systems and the availability, accuracy and protection of information. 

Implementing appropriate risk management activities to ensure that regular risk 

assessments are conducted. 

Disclosing all matters concerning any risk, allegation or instance of fraud. 

Accounting for and disclosing related-party relationships and transactions. 

Providing access to all information that is relevant to the preparation of the financial 

statements and performance information, such as records and documents. 

4


EXECUTIVE SUMMARY 

SECTION 1: Meetings with oversight bodies and those charged with governance 

7. During the audit cycle we met with key stakeholders to communicate matters relating to the 

audit outcomes of the municipality and emerging risks. Insight was provided on the key 

controls that impact these audit outcomes to enable corrective action to be taken. 

8. Meetings were conducted as follows: 

Executive authority: 01 July 2011 

05 July 2011 

15 August 2011 

Accounting officer: 24 May 2011 

01 July 2011 

05 July 2011 



08 September 2011 

20 September 2011 

06 October 2011 

13 October 2011 

Internal audit: 25 August 2011 

Audit committee: 25 August 2011 

9. At these meetings commitments were made to address improvements in the internal control 

environment with the objective of achieving clean administration. Progress made on these 

commitments is discussed later in this report. 

5


SECTION 2: MATTERS RELATING TO THE AUDITOR’S REPORT 

PART A – MISSTATEMENTS IN THE FINANCIAL STATEMENTS 

10. Material misstatements in the financial statements were identified during the audit. These misstatements were not prevented or detected by the 

municipality’s system of internal control. These material misstatements also constitute non-compliance with the Municipal Finance Management Act of 

South Africa, 2003 (Act No. 56 of 2003) (MFMA). 

11. The misstatements not corrected form the basis for the disclaimer opinion on the financial statements. 

Financial statement item 

Material misstatements 

Finding 

Impact 

R 

DR/(CR) 

Internal control deficiency– 

improvement or intervention is required to design 

and/or implement appropriate controls as detailed 

below 

Material misstatements not corrected 

Expenditure - Personnel Inappropriate classification of EPWP Wages 2 745 952 

Expenditure 

Expenditure – General 

Expenditure 

Revenue 

-2 745 952 

Overstatement of VAT receivable at year end. 405 177 

Leadership - Exercise oversight responsibility 

regarding financial and performance reporting and 

compliance and related internal controls. 

Leadership 


Expenditure 

Current Assets – VAT 

Revenue 

Adjustment to Trade and other Payables line 

item in Statement of Financial Performance for 

which there is no audit evidence. 

1 041 

– 406 218 

Exercise oversight responsibility regarding financial 

and performance reporting and compliance and 

related internal controls. 

4 199 544 Financial and performance management 

Implement controls over daily and monthly processing 

and reconciling of transactions. 

Revenue 


Expenditure 

Incorrect classification between income and 

expense and availability charges was charged 

twice to one debtor. 

-576 472 

576 472 

Financial and performance management 

Implement proper record keeping in a timely manner 

to ensure that complete, relevant and accurate 

information is accessible and available to support 

financial and performance reporting. 

6



Finding 

Impact 

R 

DR/(CR) 





below 

Revenue 

Grants not used for intended purpose 935 242 

Leadership 

Current Liabilities - Unspent 

conditional Grants 

Revenue 

Current Liabilities - Unspent 

conditional Grants 

Grant expenditure for which documentation not 

received - Deemed to be incorrectly classified. 

-935 242 

1 265 717 

-1 265 717 

Provide effective leadership based on a culture of 

honesty, ethical business practices and good 

governance, protecting and enhancing the best 

interests of the entity. 

Leadership 






Expenditure 


Expenditure 

No supporting documentation for expenditure 

detail test. 

Documentation for testing of expenditure not 

received. 

-674 752 Financial and performance management 





Leadership 




-6 129 466 Financial and performance management 





7



Finding 

Impact 

R 

DR/(CR) 





below 

Leadership 


Expenditure 

Non-current assets - 

Property, Plant & Equipment 

Expenditure - Bad debt 

expense 

Current Assets - Trade 

Receivables 

Capital grant expenditure incorrectly expensed. -624 980 

No supporting documents for bad debt written 

off in the current year. 

624 980 

-709 441 

2 460 928 




Leadership 





Financial and Performance Management 

Prepare regular, accurate and complete financial and 

performance reports that are supported and 

evidenced by reliable information. 

Provision for debt 

impairment 

Expenditure - Special 

Projects 

Current liabilities - Trade 

Payables 


Payables 

Special projects expenditure incorrectly 

classified by nature instead of function. 

Reversal of Journals due to no proof could be 

provided to verify that it is a valid journal. 

. 

Insufficient supporting documentation to 

substantiate unrecorded liabilities. 

-1 751 487 

-1 036 057 Leadership 






and reconciling of transactions 




8



Finding 

Impact 

R 

DR/(CR) 





below 


Receivables 


Receivables 

Current Liabilities - Provision 

for doubtful debts 

Insufficient supporting documentation for 

existence of debtors. 

Insufficient supporting documentation for 

debtor journals processed. 

No supporting documentation for the inputs 

used to calculate the provision for doubtful 

debts. 


financial and performance reporting 











901 411 Financial and performance management 








Unidentified VAT variances on the 2010 VAT 

reconciliation that will be brought forward to the 

current year 

Unidentified VAT variances on the VAT 

reconciliation. 

Property, plant and equipment could that could 

not be verified for existence. 

-1 008 297 Financial and Performance Management 








9



Finding 

Impact 

R 

DR/(CR) 





below 



Incorrect classification of PPE - 

Infrastructure (Disclosure). 

-1 086 248 









Incorrect classification of PPE - 

Infrastructure (Disclosure). 

465 535 






 

Incorrect classification of PPE –Community 

(Disclosure). 

-931 070 






 

Incorrect classification of PPE - Other 

Equipment (Disclosure). 

-6 672 671 






10



Finding 

Impact 

R 

DR/(CR) 





below 

 

Understating of assets pledged as security 

(Disclosure). 

1 532 270 





Incorrect classification of PPE on AFS - 

Plant & Equipment (Disclosure) 


Furniture & Fittings – (Disclosure). 


Electronic Equipment (Disclosure). 


Motor vehicles (Disclosure). 

620 714 

1 706 962 

5 120 887 

775 891 










financial and performance reporting. . 









11



Finding 

Impact 

R 

DR/(CR) 





below 

Non-current Assets - 

Investment property 

Current Assets - Cash and 

bank 


Payables 

Existence of Investment Properties could not 

be verified. 

Invalid Reconciling Items on the bank 





533 128 

-533 128 




financial and performance reporting.. 




evidenced by reliable information. . 

Disclosure - Contractual 

commitments 

Disclosure – Financial 

Instruments 

Design and implement formal controls over IT 

systems to ensure the reliability of the systems and 

the availability, accuracy and protection of information 

Contractual commitments overstated. -1 154 342 Leadership 




Financial instruments are overstated -2 935 167 Financial and Performance Management: 





Disclosure – Property, plant 

and equipment 

Finance lease assets not disclosed -3 215 380 

3 215 380 

Financial and Performance Management: 


12



Finding 

Impact 

R 

DR/(CR) 





below 




Disclosure – Cash flow 

statement 

Proceeds from sale of assets are overstated -1 013 660 Financial and Performance Management: 





Disclosure - Personnel 

expenditure 

Detailed breakdown of different classes of 

remuneration for councillors not disclosed. 

Refer to the following: 

Basic Salaries: Councillors - Note 28. 

 

Public Office Allowance - Note28. 

554 908 

323 707 






Non Taxable allowances – Note 28. 

185 000 

Back pay - Note 28. 

30 638 

Medical Contribution to Mayor – Note 28. 

12 168 

Incorrect disclosure of remunerations of 

councillors in AFS 

-1 042 232 

Disclosure - Irregular 

expenditure 

Irregular expenditure identified in detail testing 9 759 082 Financial and performance management 

Review and monitor compliance with applicable laws 

and regulations. 

13



Finding 

Impact 

R 

DR/(CR) 





below 

Leadership 



related internal controls 



and reconciling of transactions 

Leadership 



related internal controls 

Disclosure - Unauthorised 

expenditure 

Accumulation of immaterial 

uncorrected misstatements 

Unauthorised expenditure identified in detail 

testing. 

Aggregate non-material uncorrected 

misstatements for the statement of financial 

performance 



and regulations 








14


Prior year misstatement identified in the current year 

Revenue – Services 

charges 

Inappropriate classification of revenue 219 544 

Revenue – Rates 

-219 544 

Leadership 




Revenue – Services 

charges 

Current assets – Cash and 

bank 

Invalid bank reconciling items in bank recon 

of 2010 

-232 848 

232 848 


Prepare regular, accurate and complete financial 

and performance reports that are supported and 



Journal erroneously processed to VAT 491 841 

Design and implement formal controls over IT 

systems to ensure the reliability of the systems and 

the availability, accuracy and protection of 

information. 

Leadership 

Current assets – VAT 

receivable 



Receivable 

No supporting documentation for incorrect 

VAT journal processed. 

-491 841 

-153 110 

150 917 




Leadership 





expenditure 

Personnel expenditure 

Current liabilities – 

Provision for accrued leave 

Overstatement of provision for leave pay 

2009-10 

2 193 

-142 829 

142 829 


Implement controls over daily and monthly 

processing and reconciling of transactions. 

15


expenditure 


expenditure 

Current liabilities – Trade 

payables 

Non-current assets – 

Property, plant and 

equipment 

Current assets – Provision 

for landfill site 

Accumulated surplus 


expenditure 

Non-current assets – 

Property, plant and 

equipment 


receivable 

Factual limitation misstatement for no 

supporting documentation for prior period 

error journals on expenditure 

Projected limitation misstatement for no 

supporting documentation for prior period 

error journals on expenditure 

No supporting documentation provided on 

payable journals relating to prior period 

error corrections 

No supporting documentation to support 

reversal of landfill site provision 

Understating of assets pledged as security 

(Disclosure) 

VAT vote 300350041 not brought forward 

from the prior year. 

-124 694 Leadership 


Implement proper record keeping in a timely 

manner to ensure that complete, relevant and 

accurate information is accessible and available to 

support financial and performance reporting. 

-66 229 Leadership 






785 290 

-989 664 

112 756 

91 587 














16

Accumulated surplus 436 814 

Current assets – VAT VAT processed through the general ledger 

113 444 

receivable 

but not claimed on the VAT 201. 



receivable 

Current assets – Cash and 

bank 

Current assets – 

Investments 

Current assets - Cash and 

bank 


Unidentified VAT variances in the VAT 


Inappropriate classification of Investments. 1 019 470 

No evidence provided for PY error journal 

entries for cash and bank. 

No explanation provided for prior year 

adjustments. 






-113 444 processing and reconciling of transactions. 







-1 019 470 accurate information is accessible and available to 












No supporting documentation provided on 

payable journals relating to prior period 

error corrections. 

No evidence provided for PY error journal 

entries for cash and bank. 

759 757 Financial and Performance Management 








17

Disclosure – Statement of 

changes in net assets 

Disclosure – Interest 

No supporting documentation for the 

opening balance of accumulated surplus on 

the statement of changes in net assets 

compared to 2008 closing balance. 

Note 27 – Interest revenue from the bank 

does not agree with that on the statement 

of financial performance. 

Grants (Disclosure) Note 25 – Tourism hospitality grant – 

Conditions met – transferred to revenue 

Disclosure – Interest 

Note 27 – Interest revenue from trade and 

other receivables does not agree with that n 

the statement of financial performance 























Cash flow statement Miss classification of investments 1 019 470 Financial and performance management 





18


PART B – MATTERS TO BE BROUGHT TO THE ATTENTION OF THE USERS 

EMPHASIS OF MATTER PARAGRAPHS 

An emphasis of matter paragraph will be included in our auditor’s report to highlight the following 

matters to the users of the financial statements: 

Restatement of corresponding figures 

12. As disclosed in note 37 to the financial statements, the corresponding figures for 30 June 

2010 have been restated due to errors discovered during the period ended 30 June 2011 in 

the financial statements of Baviaans Municipality at, and for the year ended, 30 June 2010. 

ADDITIONAL MATTER PARAGRAPHS 

An additional matter paragraph will be included in our auditor’s report to highlight the following 

matters to the users of the financial statements: 

Material inconsistencies in other information included in the annual report 

13. Material inconsistencies between the draft annual report and financial statements were 

identified. This is due to the draft financial statements being included in the annual report 

rather than the final set of financial statements that was submitted for audit purposes. 

Unaudited supplementary schedules 

14. The supplementary information set out in appendices A, B, F and D do not form part of the 

financial statements and is presented as additional information. I have not audited these 

schedules and accordingly I do not express an opinion thereon. 

PART C – REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS 

FINDINGS ON THE REPORT ON PREDETERMINED OBJECTIVES 

15. Included below are the findings raised during our audit of the report on predetermined 

objectives. 

19

Report on predetermined objectives 

Presentation of information 

16. The following criteria are relevant to the findings below: 

 


Performance against predetermined objectives is reported using the National Treasury 

guidelines. 

17. Audit findings: 

Reasons for major variances between planned and actual reported targets were not 

provided in the report on predetermined objectives 

Adequate explanations for any major variances between the planned and the actual 

reported targets were not provided, as required in terms of the relevant reporting 

guidance. 

Usefulness of information 

18. The following criteria are relevant to the findings below: 

 

 

Relevance: A clear and logical link exists between the objectives, outcomes, outputs, 

indicators and performance targets 

Measurability: Indicators are well defined and verifiable, and targets are specific, 

measurable and time bound 


Planned and reported indicators are not well defined 

 

Sixty-four per cent of the planned and reported indicators that were selected were not 

clear, as unambiguous data definitions were not available to allow for data to be collected 

consistently. 

Planned and reported indicators are not verifiable 

Valid performance management processes and systems, that produce actual 

performance against the planned indicators, do not exist for 47% of the selected 

indicators. 

Planned and reported targets are not specific 

 

Targets were not specific in clearly identifying the nature and the required level of 

performance in respect of 55% of the selected objectives. 

Planned and reported targets are not measurable 

 

Seventy-four per cent of the planned and reported targets for the selected indicators 

were not measurable in identifying the required performance. 

Planned and reported targets are not time bound 

 

All of the planned and reported targets that were selected were not time bound in 

specifying the time period or deadline for delivery. 

20


Planned objectives and indicators are not relevant to the mandate and objectives of 

the entity 

 

The indicator and targets as per the integrated development plan did not relate directly, 

in more than 39% of instances, to the institution’s strategic goals and objectives as per 

the five year integrated development plan. 

Reliability of information 

20. The following criteria are relevant to the findings below:: 

 

 

 

Validity: Actual reported performance has occurred and pertains to the entity 

Accuracy: Amounts, numbers, and other data relating to reported actual performance 

have been recorded and reported appropriately 

Completeness: All actual results and events that should have been recorded have been 

included in the annual performance report 


Reported performance against targets is not valid, accurate and complete when 

compared to source information 

 

 

 

 

 

Sixty-seven per cent of the reported targets for the selected objective were not accurate 

and valid based on the source information provided. 

All of the reported targets for the selected objectives were not valid and accurate based 

on the source information provided. 

None of the reported targets in respect of the selected objectives are complete, based on 

the source information provided. 

Fifty per cent of the reported targets for the selected objectives were not valid and 

accurate based on the source information provided. 

Based on the source information provided, 33% of the reported targets for 33% of the 

selected objectives were not complete. 

Reasons for major variances between planned and actual reported targets were not 

provided in the report on predetermined objectives 

 

Adequate explanations for all of major variances between the planned and the actual 

reported targets for none of the objectives, as required in terms of the relevant reporting 

guidance, could not be provided. 

FINDINGS ON COMPLIANCE WITH LAWS AND REGULATIONS 

Included below are findings on material non-compliance with laws and regulations applicable to the 

municipality. 

Strategic planning and performance management 

22. The municipality did not implement a framework that describes and represents how the 

municipality’s cycle and processes of performance planning, monitoring, measurement, 

review, reporting and improvement will be conducted, organised and managed, including 

determining the roles of the different role players as required by sections 38, 39, 40 and 41 of 

the Municipal Systems Act of South Africa, 2000 (Act No.32 of 2000) (MSA) and Municipal 

Planning and Performance Management Regulations, 2001 (MPPR) published in General 

Notice 796 of 24 August 2001. 

23. The accounting officer of the municipality did not submit the results of the assessment on the 

performance of the municipality during the first half of the financial year to the mayor of the 

21

Budgets 


municipality, the National Treasury, and the provincial treasury as required by section 72(1) 

(b) of the MFMA. 

24. The municipality incurred expenditure that was not budgeted for and incurred expenditure in 

excess of the limits of the amounts provided for in the votes in the approved budget, in 

contravention of section 15 of the MFMA. 

25. The annual budget of the municipality is not based on the development priorities and 

objectives as well as the performance targets set by the municipality in its IDP as required by 

regulation 6 of the MPPR. 

Annual financial statements, performance and annual reports 

26. 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 

identified by the auditors were not adequately corrected, which resulted in the financial 

statements receiving an adverse audit opinion. 

27. The accounting officer neither wrote the council's oversight report on the 2009-10 annual 

report within seven days of its adoption (section 129(3) of the MFMA), nor did he make the 

annual report for 2009-10 public immediately after the annual report was tabled in the council 

(section 127(5) of the MFMA). 

28. The report containing the council’s comments on the annual report for 2009-10 was not 

adopted within two months from the date on which the annual report was tabled in the 

council as required by section 129(1) of the MFMA. 

29. The performance report for the financial year under review was not prepared as required by 

section 46 of the MSA and section 121(3) (c) of the MFMA. 

Audit committees 

30. The audit committee did not advise the council, the accounting officer and the management 

staff of the municipality on matters relating to accounting policies and performance 

evaluation. It also did not review the annual financial statements and also did not meet at 

least four times a year (section 166 of MFMA). 

31. The performance audit committee or another committee functioning as the performance audit 

committee did not review the quarterly reports of the internal auditors on their audits of the 

performance measurements or submit a report to the council regarding the performance 

management system at least twice during the financial year (MPPR Regulation 14). 

Procurement and contract management 

32. It was not possible to determine whether goods and services with a transaction value of 

between R10 000 and R200 000 were either procured without obtaining written price 

quotations from at least three different or quotation were obtain at all (Supply Chain 

Management Regulation (SCM) 17) due to the lack of documentation provided. 

33. Adequate documentation was not submitted to confirm that quotations were accepted from 

suppliers who are not on the list of accredited prospective providers and sufficient or that 

they meet the listing requirements of SCM Regulation 16 and 17. 

22


34. Sufficient evidence could not be obtained that goods and services with a transaction value 

above R200 000 were procured by inviting competitive bids as per the requirements of SCM 

Regulations 19(a) and 36(1) or that bid specifications for procurement of goods and services 

were drafted in an unbiased manner that allowed all potential suppliers to offer their goods or 

services (SCM Regulation 27). 

35. Due to the lack of evidence it was not possible to confirm that awards were granted in terms 

of criteria that were stipulated in the original bid documents as per the requirements of SCM 

regulations 21(b) and 28(1). Sufficient evidence could also not be provided to confirm that, in 

all cases, invitations for competitive bidding were advertised for 30 days (SCM Regulation 

22), that bid specifications were the product of a bid specification committee (S CM 

Regulation 27) or that bids were evaluated by properly composed bid evaluation committee 

(SCM Regulation 28). 

36. Inadequate audit evidence could not be obtained to confirm that final awards and/or 

recommendation of awards to the accounting officer were made by an adjudication 

committee that was constituted in terms of the requirements of SCM Regulation 29. 

37. Sufficient audit evidence could not be obtained to confirm that awards were made to 

suppliers who were able to provide tax clearance certificates tax matters had been declared 

by the South African Revenue Service to be in order as required by SCM Regulation 43. 

38. Awards were made to suppliers who did not submit a declaration on their employment by the 

state or their relationship to a person employed by the state as per the requirements of SCM 

Regulation 13(c). 

39. Due to the lack of audit evidence it could not be confirmed that all items over R30 000 were 

procured in terms of the preference point system that is prescribed by section 2 of the 

Preferential Procurement Policy Framework Act, 2000 ( Act No. 5 of 2000) (PPPF Act) and 

SCM Regulation 28. It was also not possible to obtain confirmation that in all cases awards 

were made to suppliers based on preference points that were allocated and calculated in 

accordance with the requirements of the (various sections of PPPF Act and its regulations). 

Insufficient evidence could be obtained to ascertain that awards were made to suppliers that 

scored the highest points in the evaluation process as required by section 2(1) (f) of PPPF 

Act. 

40. The performance of contractors or suppliers was not monitored effectively, on a monthly 

basis as required by section 116(2) of the MFMA. 

41. Sufficient appropriate audit evidence could not be obtained that construction contracts were 

awarded to contractors that were registered and qualified for the contract in accordance with 

the various prescripts of the Construction Industry Development Board. 

42. Awards were made to suppliers whose principal shareholders are persons in the service of 

other state, in contravention of the requirements of SCM regulation 44. Furthermore, 

sufficient and appropriate audit evidence could not be obtained that the provider declared 

23


that he is in the service of the state as required by SCM Regulation 13(c). 

Expenditure management 

43. Amounts owing by the municipality to creditors were not always paid within 30 days of 

receiving an invoice, as is required by section 65(2)(e) of the MFMA. In certain cases it was 

not possible to determine that suppliers were paid within 30 days of receiving an invoice or 

statement, due to the lack of documentation provided. 

44. All reasonable steps were not taken to ensure that the municipality had and maintained an 

effective systems expenditure control and management. Furthermore, adequate steps were 

not taken to ensure that the accounting and information system which recognised 

expenditure and accounted for creditors of the municipality functioned effectively (section 

65(2) of the MFMA). Sufficient appropriate steps were also not taken to prevent unauthorised 

expenditure, irregular expenditure, and fruitless and wasteful expenditure, as required by 

section 62(1) (d) of the MFMA. 

45. The municipality did not determine whether unauthorised, irregular or fruitless and wasteful 

expenditure resulted from inappropriate actions of officials and thus did not take steps to 

recover amounts from officials where they were negligent or in any other caused the 

municipality to breach the requirements of section 32(2) of the MFMA. 

Transfers and conditional grants 

46. In certain cases the financial management grant, municipal infrastructure grant, municipal 

systems improvement grant and tourism training grant were not utilised for the purposes that 

they were made available for in terms of section 15(1) of the Division of Revenue Act, 2010 

(Act No. 1 of 2010) (DoRA). It was also not always possible to determine whether these 

grants had been used for their intended purpose due to the lack of documentation that could 

be made available. 

Revenue management 

47. Adequate steps we not taken ensure that the municipality had and maintained a 

management, accounting and information system which recognised revenue when it is 

earned, accounted for debtors and receipts of revenue, as required by section 64(2)(e) of the 

MFMA. 

Asset management 

48. Adequate mechanisms, to ensure that internal controls and the accounting and information 

systems relating to asset management were insufficient (section 63(2)(a) of the MFMA). 

24


INTERNAL CONTROL 

Achievement of internal control objectives 

49. Significant deficiencies that resulted in the basis for the adverse opinion, findings on the 

report on predetermined objectives and findings on compliance with laws and regulations are 

summarised below. Detailed information on significant internal control deficiencies is 

provided in section 4 of this report. 

 

Leadership 

Management has not always acted decisively in addressing audit findings of the 

previous financial year. This resulted in material deficiencies not being sufficiently 

addressed to avoid similar findings being reported again. This was caused by the lack of 

oversight and effective leadership. 

The leadership does not exercise sufficient control and direction to ensure that there is a 

general regard and compliance with laws and regulations that govern the municipality. 

This resulted in a significant irregular expenditure incurred often not being detected by 

the municipality but rather through the audit process. The lack of action taken to address 

the irregular expenditure reported on in the previous financial year is also an indication 

of management’s reluctance and willingness to address the non-compliance with laws 


The risks relating to predetermined objectives were also not adequately identified and 

addressed by management. This resulted in inadequate structuring of the performance 

reporting process and an inability to support actual achievements with reliable and 

relevant documentation. It also gave rise to inadequate monitoring and review and 

culminated in many service delivery objectives and targets not being met. 

 


Sufficient attention was not given to the strategic financial management direction and 

control. Consequently, many of the prior year audit findings were not addressed and 

were raised again during the financial year under review. Proper record keeping was not 

maintained to ensure that complete, relevant and accurate information is accessible and 

available to support financial and performance reporting. This was despite the 

municipality making use of financial consultants to carry out a leading role in the 

compiling of annual financial statements. 

The material misstatements and lack of available supporting documentation are as a 

result of the lack of review of transactions at all levels of financial management. 

Furthermore, accounting disciplines are not in the form of regular daily, weekly and 

monthly reconciliations and review. 

The overriding root cause of the inability of the municipality to accurately record and 

provide support for financial transactions is that officials are not in all respects fulfilling 

their assigned duties and functions with the required diligence and enthusiasm. 

25


 

Governance 

The audit committee continues to play a limited role in governance matters. The audit 

committee issues the reports of internal audit to the council without making a direct 

contribution by informing the council or the oversight committee of its concerns and 

recommendation in terms of its legislated mandate. The audit committee does not 

promote accountability through evaluating and monitoring responses to risks and 

providing oversight over the effectiveness of the internal control environment including 

financial and performance reporting and compliance with laws and regulations 

PART D – OTHER REPORTS 

INVESTIGATIONS 

50. Investigations in progress 

Description 

An investigation is being conducted to 

probe the possible irregularities of 

prepaid electricity revenue collected by 

vendors but not paid over to the 

municipality. The investigation aims to 

establish whether vendors did withhold 

money received on behalf of the 

municipality for the sale of prepaid 

electricity. The investigation was still 

ongoing at the reporting date. 

Supply chain 

management 

Reason 

Fraud 

X 

Financial 

misconduct 

SECTION 3: SPECIFIC FOCUS AREAS 

PART A – SIGNIFICANT FINDINGS FROM THE AUDIT OF PROCUREMENT AND CONTRACT 

MANAGEMENT 

51. The audit included an assessment of procurement processes, contract management and 

controls of the municipality, which should ensure a fair, equitable, transparent, competitive 

and cost-effective supply chain management system that complies with legislation and 

minimises the likelihood of fraud, corruption, favouritism, and unfair and irregular practices. 

The assessment which was performed has revealed the following deficiencies: 

Irregular expenditure 

52. An amount of R12 819 416,70 of irregular expenditure was incurred in the period as a result 

of the contravention of SCM legislation. A total of 76,08% of the irregular expenditure was 

identified during the audit process. The incomplete identification of SCM irregular 

expenditure was as a result of inadequate processes and procedures to identify irregular 

expenditure with regard to SCM and an inadequate filing system in place which resulted in a 

scope limitation. It could thus not be established to what extent the procurement process 

was followed. 

Limitations on audit 

53. Sufficient appropriate audit evidence could not be provided that five of the 16 selected 

contracts awarded and four of the 55 of the selected quotations accepted (hereinafter 

26


referred to as “awards”) to the value of R4 759 284 were made in accordance with the 

requirements of the SCM legislation. No alternative audit procedures could be performed to 

obtain reasonable assurance that the expenditure incurred on these awards was not 

irregular. Restrictions were also placed on the auditors to assess specific matters, the detail 

of which is listed below. 

54. The limitations experienced were as a result of missing documentation, inadequate 

documents management systems, as well as a failure by management to fully comply with 

SCM regulations in all cases, thus leading to many cases of documents not being available. 

As a result of the limitations experienced, the findings reported in the rest of this section 

might not reflect the true extent of irregularities and SCM weaknesses at the entity. 

Awards to persons in the service of the state 

55. Awards made to supplier’s persons in service of the state include: 

Supplier 

Surname 

of person 

First name of 

person 

Masibambane Food 

Francis 

Services 

Erasmus Cathleen 

Mayihlume 

Mhlangenaba 

Construction 

Nonkonana Alfred 

Masibambane Food 

Services De Vos Eunice Euna 

Swarts & Matolla 

Construction CC Swarts Justin Edmond 

Awards in 

Department 2011 

Eastern Cape: 

Education 1,980.00 

Eastern Cape: 

Health 92,460.00 

Eastern Cape: 

Health 1,980.00 

Eastern Cape: 

Health 636.00 

Performance of other remunerative work by employees 

56. Three persons in the employment of other state institutions were discovered to have a 

business or private interest in one of the client’s suppliers as listed above. 

There was no declaration of interest or approval from the relevant person for contract of 

R92 460 awarded to Mayihlume Construction. 

Procurement processes and contract management 

57. Findings were identified in 16 contracts with a total rand value of R12 198 125 and 55 price 

quotations with a total rand value of R2 620 061 and are summarised in the following 

categories: 

Procurement need and economy 

 

 

It was determined that in general the municipality operated in terms of their needs as 

the majority of the expenditure identified was on projects, including road, water and 

electricity maintenance, as well as maintenance of housing schemes, which is in line 

with the nature of the municipality’s operations and the allocation of the municipality’s 

budget was towards necessary and value-adding projects. 

The municipality deviated from the SCM process by an amount of R20 780 724 of the 

items selected for testing, which could result in goods and services that were not 

obtained at a fair market price. 

Procurement process – Quotations 

 

In the evaluation of the standard SCM procedures for quotations for the year, the 

municipality did not obtain three quotations from suppliers and deviated from the SCM 

process for quotations with a value of R1 479 143. The deviation process was not 

sufficiently followed and no reasons could be provided for instances where the 

municipality did not obtain three quotations and deviated from the SCM process. 

27

Procurement process – Competitive bidding 

 

 

 


In the evaluation of expenditure to suppliers where tenders exceeded R200 000 for the 

year, no supporting documentation was provided for an amount of R9 414 071 of the 

tenders selected for testing and we could not verify whether the competitive bidding 

process was followed. 

In addition to this, we verified that supplier and service providers had been adopted by 

the municipality through contractual arrangements and no competitive bidding process 

followed. 

The fact that management failed to follow the SCM process increases the risk of fraud 

being committed. 

Construction contracts 

 

 

No cognisance was taken of the regulations set out in the Construction Industry 

Development Board (CIDB) regulations for construction contracts procured between 

R30 000 and R200 000. 

Construction contracts with a value of R517 459 were identified where no specification 

for the minimum category for which potential bidders should be registered with the 

CIDB was specified in the advertisements. In addition, we verified instances where 

projects were not advertised on the CIDB website as required in terms of the 

regulations for construction contracts. 

Contracts, contract management and payments 

 

There were certain issues identified where contracts are not monitored on a monthly 

basis and there are no measures implemented to evaluate the monitoring of these 

projects. 

Internal control deficiencies 

58. Management did not exercise oversight responsibility regarding internal control procedures 

to verify the effective operation of the Supply Chain Management policy and that all 

legislative requirements have been met. 

SECTION 4: SIGNIFICANT DEFICIENCIES IN INTERNAL CONTROL 

PART A – ASSESSMENT OF THE ACHIEVEMENT OF CONTROL OBJECTIVES 

59. The achievement of the objectives of internal control is demonstrated by the implementation 

of key controls. The assessment below is based on significant deficiencies relating to the fair 

presentation of the financial statements, material misstatements corrected as a result of the 

audit, findings on predetermined objectives and findings on non-compliance with laws and 

regulations. Significant deficiencies occur when internal controls either do not exist or are not 

appropriately designed to address the risk or are not implemented and which either had or 

could cause the financial statements or report on predetermined objectives to be materially 

misstated and material non-compliance with laws and regulations to occur. When a 

significant deficiency is not applicable, it is assessed with a , to indicate that the 

deficiency still exists but significant progress had been made to address it, while indicates 

that urgent attention to the matter is required. Part B gives additional information on the 

28


deficiencies that should be addressed. Other deficiencies in internal control, which require 

the attention of management, are included in the detailed findings attached to this report. 

29


Fundamentals 

of internal control 

3 Audit dimensions 

Financial 

Performance 

objectives 

Assessment 

Compliance 

with laws 

and 

regulations 

Leadership 

Provide effective leadership based on a culture of honesty, ethical business 

practices and good governance, protecting and enhancing the best interests 

of the entity 

Exercise oversight responsibility regarding financial and performance 

reporting and compliance and related internal controls 

Implement effective HR management to ensure that adequate and 

sufficiently skilled resources are in place and that performance is monitored 

Establish and communicate policies and procedures to enable and support 

understanding and execution of internal control objectives, processes, and 

responsibilities 

Develop and monitor the implementation of action plans to address internal 

control deficiencies 

Establish an IT governance framework that supports and enables the 

business, delivers value and improves performance 


Implement proper record keeping in a timely manner to ensure that 

complete, relevant and accurate information is accessible and available to 

support financial and performance reporting 

Implement controls over daily and monthly processing and reconciling of 

transactions 

Prepare regular, accurate and complete financial and performance reports 

that are supported and evidenced by reliable information 

Review and monitor compliance with applicable laws and regulations 

Design and implement formal controls over IT systems to ensure the 

reliability of the systems and the availability, accuracy and protection of 

information 

Governance 

Implement appropriate risk management activities to ensure that regular risk 

assessments, including consideration of IT risks and fraud prevention, are 

conducted and that a risk strategy to address the risks is developed and 

monitored 

Ensure that there is an adequately resourced and functioning internal audit 

unit that identifies internal control deficiencies and recommends corrective 

action effectively 

Ensure that the audit committee promotes accountability and service 

delivery through evaluating and monitoring responses to risks and providing 

oversight over the effectiveness of the internal control environment including 

financial and performance reporting and compliance with laws and 

regulations 

30


PART B – DETAILS CONCERNING THE ACHIEVEMENT OF INTERNAL CONTROL 

OBJECTIVES 

Leadership 

Ethical business practices 

60. Management established a formal code of conduct which addressed appropriate ethical and 

moral behaviour which was communicated to all staff members of the municipality. This code 

was, however, not adequately implemented which has resulted non-compliance with laws and 

regulations and inaccurate financial reporting. 

Oversight responsibility regarding reporting and compliance 

61. The accounting officer does not exercise oversight responsibility over reporting, compliance 

with laws and regulations and internal control. Actions are not taken to address the risks 

relating to the achievement of complete and accurate financial and performance reporting. 

Control weaknesses are not analysed and appropriate follow-up actions are not taken that 

address the root causes. Furthermore, the internal and external audit findings are not 

adequately addressed. 

Effective human resource management 

62. An assessment of human resource management has identified the following deficiencies: 

Human resource planning and organisation 

 

Job descriptions did not exist for each post or group of posts. 

Appointment processes 

 

The prescribed selection and approval processes were not followed for all appointments 

as instances were identified where the vacant post was not advertised and no clear 

evidence that the candidate was successfully evaluated due to CVs that were not on file. 

Competencies of key personnel 

 

There is a lack of review, supervision and direction in the finance department. 

Management and middle management in finance has little knowledge of accounting best 

practice and the accounting standards applicable to the presentation of the financial 

statements. In addition to this, the qualification of key finance personnel is insufficient for 

accurate financial reporting. Consequently, the municipality had to employ consultants to 

correct the accounting records and to prepare the financial statements submitted for 

auditing. 

Overtime 

 

We could not obtain a register of overtime converted into leave to confirm that written 

authorisation had been provided for employees who converted their overtime into leave. 

Leave administration 

 

The required medical certificates were not submitted for sick leave for certain employees. 

In addition to this, there were various instances where the leave being reported on the 

leave system did not match the leave application forms, leave not processed on proper 

time, attendance registers provided do not match the leave captured on the system and 

the leave in leave form files and attendance registers that could not be provided for audit 

purposes. 

Restrictions 

 

Restrictions were placed on the auditors to assess HR management due to missing 

employee files, allowance forms, deduction approvals and termination documents. 

31


Implementation of policies and procedures 

63. Management does not have documented procedures to guide the operations of the entity, 

resulting in numerous instances of non-compliance with the MFMA, as detailed under the 

reporting on compliance with laws and regulations section’ of this report. 

The municipality did not have documented and approved internal policies and procedures to 

address planning, implementation, monitoring and reporting processes and events pertaining 

to performance management and reporting. 

Establishment of an IT governance framework 

64. There is currently no formally documented IT strategic plan which helps to direct the activities 

of the information technology function to ensure they are aligned with the municipality’s priority 

programmes as specified in the integrated development plan. In addition, there is no formal IT 

risk management framework/policy that defines the core set of activities and outputs required 

to effectively manage information security risks. A project management policy has also not 

been developed which defines the scope and boundaries for managing projects as well as the 

methods to be adopted for each project undertaken. These shortcomings are attributable to the 

lack of an internal IT resource with relevant skills and experience to provide leadership and 

direction to the IT function so that it delivers optimal value to the municipality. 

Status of SCOPA/oversight resolutions 

65. The accounting officer was not called to appear before SCOPA to discuss the reason for the 

poor prior year audit report. 

FINANCIAL AND PERFORMANCE MANAGEMENT 

Availability of expected information 

66. As indicated in our engagement letter, we agreed that all information requested for purposes of 

the audit would be submitted within three days of the request by the auditors. Certain other 

dates were agreed to in requests for information and audit steering meetings. Despite these 

agreements, management did not supply the documentation requested in the following 

instances: 

 

 

 

 

 

 

 

 

 

Evidence to prove that trade and other payables and related expenditure and property, 

plant and equipment are complete. 

VAT reconciliation, complete with all supporting documentation. 

Supporting documentation to verify the occurrence, accuracy and completeness and 

classification of revenue and expenditure 

Supporting documentation to support the existence and valuation of receivables from 

exchange transactions. 

Evidence to prove that property, plant and equipment and investment property do exist 

and are complete. 

Evidence to prove that the provision for doubtful account is accurately valued. 

Supporting documentation to support the disclosure of capital grant expenditure. 

Evidence to prove that the accumulated surplus balance is accurately valued, complete 

and do exist. 

Evidence to prove that the cash and bank balance is accurately valued, complete and 

does exist. 

32


Controls over daily and monthly processing and reconciling of transactions 

67. A number of the municipality’s processes are not monitored constantly throughout the year and 

are only responded to when required to do so for year end financial reporting purposes. The 

following areas are specifically affected: 

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment 

Intangible assets 


Consumer deposits 

Trade receivables 

Value-added tax 

Trade payables 

Revenue 

Irregular expenditure 

Fruitless and wasteful expenditure 

Unauthorised expenditure 

No daily controls over monthly reconciliations are completed for the above items. 

Formal control over IT systems 

68. The municipality is currently in the process of designing and implementing formal controls over 

IT systems to ensure the reliability of the systems and the availability, accuracy, and protection 

of information. The following is a synopsis of the findings and their causes per each focus area: 

Security management 

The existing IT policy does not adequately address user administration, database 

security, and network security with reference to remote access to systems and use of 

instant messaging. This is attributed to the fact that the development of the existing IT 

policy was delegated to the current IT service provider (STASA), whose terms of 

reference was limited to the provision of network and operating system support. 

User access control 

There are no user account management standards that address the granting, review and 

termination of users with respect to the SAMRAS and Syntell applications. Furthermore, 

user activity logs of the Syntell system administrator and access rights for normal users 

are not subject to periodic review. These deficiencies are attributable to the lack of a 

management level in-house IT resource to develop and implement relevant policies to 

ensure the preservation of the integrity of data stored and processed by the municipality’s 

key IT systems. 

Facilities and environment control 

The municipality currently does not have a formal physical and environmental security 

policy in place which facilitates the effective management of access to IT facilities and the 

implementation of appropriate environmental controls for critical IT equipment. This is 

attributed to the lack of internal IT capacity to develop and implement relevant physical 

access and environmental security policy. 

33


Information technology service continuity 

 

An IT disaster recovery plan (DRP) is in place but there was no evidence that the plan 

was formally tested in the year under review. Oversight of the backup process was also 

found to be inadequate in that management does not review and sign off backup 

registers/logs on a periodic basis to obtain the assurance that data is regularly backed up 

to facilitate recovery in the event of a disaster/disruption. These weaknesses are 

attributed to lack of internal IT capacity to provide oversight on the backup process. 

Adoption of accounting policies/accounting estimates 

69. The municipality applied estimates in the calculation for provision for doubtful debts, the 

underlying assumptions and methods applied by the municipality could not be vouched against 

valid supporting documentation which has resulted in a scope limitation for provision for 

doubtful accounts in the financial statements. 

Adequacy of IT systems for the preparation of the financial statements and the report on 

predetermined objectives 

70. The accounting officer did not ensure that reliable systems exist for the recording of financial 

information and reporting on performance information. 

Use of consultants for financial statement preparation 

71. The municipality did not have individuals who understand the financial reporting framework 

requirements. This resulted in the municipality engaging a consultant to assist with the financial 

statements. The underlying accounting records of the municipality did not facilitate the 

preparation of the financial statements to comply with the accounting framework. 

72. The consultants did not perform any transfer of skills for the functions performed. 

73. The adjustments processed by the consultants did not have sufficient supporting 

documentation in all instances. 

Budgetary processes 

74. The budget of the municipality was not consistent with the strategic objectives as per the 

approved integrated development plan. 

75. The municipality did not appropriate all expenditure for the budget year under the different 

votes, management failed to budget for financial statement close process transaction which is 

prohibited by section 17 of the MFMA. 

Related-party transactions 

76. There was no formal process that management has established to identify, account for, and 

disclose related-party relationships and transactions in accordance with the applicable financial 

reporting framework. 

Monitoring of compliance with laws and regulations 

77. The municipality did not have processes in place to ensure compliance with laws and 

regulations.The municipality has therefore failed to comply with the applicable laws and 

regulations. 

34


Accuracy and completeness of financial statements and report on predetermined objectives 

78. There is no clear evidence that the financial statements and other information to be included in 

the annual report were reviewed by the audit committee and accounting officer for 

completeness and accuracy prior to submission for audit purposes. This has resulted in the 

financial statements and performance information being subject to material misstatements 

resulting from the audit process. 

GOVERNANCE 

Risk management 

79. The municipality did not perform or update its risk assessment in the current period. The risk 

assessment was not adequate as it did not give consideration to the possibility of fraud. It was 

performed at an entitywide level and not at a component / activity / cycle level. 

Fraud prevention, detection and response 

80. The municipality has not undertaken a risk assessment to assess any risks of fraud and has, 

consequently, not updated the fraud prevention plan approved in 2007. The possible 

irregularities of prepaid electricity revenue collected by vendors, but not paid over to the 

municipality is in investigation as discussed in part D of section 2 of this report. 

Internal audit 

81. Internal audit did fulfil its responsibilities as set out in legislation and in accordance with 

accepted best practice and standards. They did, however, not undertake an annual risk 

assessment that should consider the input of senior management and the council. 

Audit committee 

82. The audit committee did not hold meetings with sufficiently regularity as it is required that they 

must have at least four meetings during the financial year under review. We noted that the 

audit committee only had three meetings during the financial year under review. 

83. The audit committee did not review or consider the quarterly reports on performance 

information submitted to it by the internal audit and the report from the senior performance 

officer on performance management during the audit committee meetings. 

84. The audit committee did not meet prior to the submission of the financial statements / report on 

predetermined objectives for auditing on 30 August 2011 to review the adequacy, reliability and 

accuracy of the financial statements / report on predetermined objectives. 

PART C – ACTIONS TAKEN TO ADDRESS MATTERS PREVIOUSLY REPORTED 

Actions taken by management and those charged with governance to address matters 

previously reported 

85. Management undertook to address the issues and concerns raised by the prior year 

management report. Action plans were formulated during a formal meeting attended by the 

municipal manager, members of the audit committee, the chief financial officer and all heads of 

departments. This action plan contained the issues identified, actions to be taken, time frames 

and the responsible person. This action plan addressed the findings and not the internal control 

deficiency but was, however, not implemented in the current period. This resulted in the 

recurrence of issues identified in the prior year and similar issues being raised. 

35


86. Management has been proactive in developing an action plan to address audit findings 

resulting from the current audit process. The action plan is being updated as new audit findings 

are communicated to the accounting officer. A workshop has been held and attended by all 

section 57 managers and the mayor to restructure the roles and responsibilites of municipal 

officials to enhance the effectiveness of achieving the set action plans. This plan was 

presented to the council on 13 October 2011 during a special council meeting. 

PART D – EMERGING RISKS 

Accounting and compliance matters 

87. The municipality took advantage of certain of the transitional provisions as detailed in Directive 

4. For the forthcoming financial year the transitional provisions will no longer be applicable and 

the municipality would have to comply with all the requirements as per SA Standards of GRAP. 

Management should therefore ensure that the appropriate systems and internal controls are in 

place to ensure full application of the SA Standards of GRAP in the forthcoming financial year. 

This will impact the municipality as follow: 

Property, plant and equipment should be treated in accordance with GRAP 17. 

Provision for landfill site should be treated in accordance with GRAP 19. 

88. The municipality has taken over the Rietbron area. This will place further strain on the 

municipality as staff constraints could have a negative impact on the municipality’s financial 

performance. 

36


SECTION 5: RATINGS OF DETAILED AUDIT FINDINGS 

89. For the purposes of this report, the detailed audit findings included in annexures A to C have 

been classified as follows: 

 

 

 

Matters to be included in the auditor’s report – These matters should be addressed as a 

matter of urgency. 

Other important matters – These matters should be addressed to achieve clean 

administration. 

Administrative matters – These matters are unlikely to affect the decisions of the users of 

the financial statements or performance information and should be addressed at the 

discretion of the entity. 

SECTION 6: CONCLUSION 

90. The matters communicated throughout this report relate to the three fundamentals of internal 

control which should be addressed to achieve sustained clean administration. The AGSA staff 

remains committed to assisting in the process of identifying and communicating good practices 

to improve governance and accountability, so as to build public confidence in government’s 

ability to account for public resources in a transparent manner. 

Yours sincerely 

Ralph Sheffield-Webb 

Senior Manager: Eastern Cape 

30 November 2011 

Enquiries: Debbie Parker 

Telephone: 043 709 7200 

Fax: 043 709 7300 

Email: 

ralphsw@agsa.co.za 

Distribution: 

CFO 

Audit committee 

Head of internal audit 

37


SUMMARY OF DETAILED AUDIT FINDINGS 

Classification 

Rating 

In which years was it 

reported 

Page. no. 

Finding 

Misstatements in 

financial statements 


annual performance 

report 

Non-compliance with 

laws & regulations 

Internal control 

deficiency 

Service delivery 

Matters affecting the 

auditor’s report 

Other important 

matters 

Administrative 

matters 

2009/10 

2008/09 

2007/08 

Cash and cash equivalents 

57 Cash and cash equivalents - Invalid bank 

reconciling items 

59 Cash and cash equivalents - Adjustments to 

opening balance not traceable back to the system 

61 Cash and cash equivalents - No supporting 

documentation for journal entries 

Employee costs 

63 Personnel expenditure - Overtime, assistance 

allowances and back pay calculated incorrectly 

238 Personnel expenditure - Incorrect posting of leave 

back pay to allowances 

65 Personnel expenditure - Payroll schedule does not 

reconcile to annual financial statements 


66 Internal Control - Property, plant and equipment: 

Fixed asset register only updated at year end 

239 Internal Control - Cash and cash equivalents: 

Cheque mail received not opened by two people 

 

 

 

 

 

 

 

 

67 Internal Control - Cash and cash equivalents: 

 

 

 

38



Rating 


reported 

Page. no. 

Finding 





report 




deficiency 





matters 


matters 

2009/10 

2008/09 

2007/08 

Inaccurate bank reconciliation 

240 Internal Control - Other financial assets: There are 

no monthly reconciliations of investment schedules 

prepared 

241 Internal Control - Expenditure: Exception reports 

are not generated, reviewed and acted upon. 

68 Internal Control - Trade and other payables: 

Payable reconciliations are not performed 

242 Internal Control - Action plans to address audit 

findings not implemented yet 

243 Internal Control - No monitoring of masterfile 

amendments 

245 Internal Control - Journals are prepared and 

authorised by the same person 

246 Internal Control - Revenue: No rates reconciliation 

prepared 

70 Internal Control - Trade and other payables: No 

review of payments processed onto the system 

247 Internal Control - Revenue: No reconciliation 

between valuation roll and the Deeds office 

248 Internal Control - Revenue: No reconciliations 

between Syntell pre-paid electricity system and 

SAMRAS are performed 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

39



Rating 


reported 

Page. no. 

Finding 





report 




deficiency 





matters 


matters 

2009/10 

2008/09 

2007/08 

249 Internal Control - Revenue: Lack of follow up on 

consumer accounts included in the monthly 

exception report 

250 Internal Control - Revenue: No control to confirm 

that all revenue from septic tank removals are 

processed 

251 Internal Control - Revenue: No control in place to 

verify the cut off of revenue from water and 

electricity consumption 

252 Internal Control - Revenue: No reconciliation 

between eNatis and SAMRAS for the licencing fee 

income 

253 Internal Control - Revenue: Lack of segregation of 

duties in the licensing department 

254 Internal Control - Trade and other receivables: Sub 

ledger is not reconciled to the receivables control 

account. 

255 Internal Control - Trade and other receivables: No 

controls in place to verify that overdue accounts are 

blocked 

256 Internal Control - Expenditure: Inaccurate payments 

made to prepaid electricity vendors 

257 Internal Control - Expenditure: There are no 

controls around processing of invoices 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

40



Rating 


reported 

Page. no. 

Finding 





report 




deficiency 





matters 


matters 

2009/10 

2008/09 

2007/08 

258 Internal Control - Expenditure: No controls over 

journal entries processed 

71 Internal Control - Trade and other payables: No 

controls to ensure all invoices and accruals are 

recorded in the correct period. 

259 Internal Control - Personnel expenditure: No review 

of amounts posted onto the system for payroll 

72 Internal Control - Personnel expenditure: The 

payroll system is not reconciled to the general 

ledger on a monthly basis 

73 Internal Control - Personnel expenditure: There are 

no controls to ensure that the leave pay provision is 

accurate 

260 Internal Control - Personnel expenditure: No 

documented evidence of performing background 

checks on new employees 


controls to confirm that all leave forms approved 

are processed 

261 Internal Control - Weaknesses in the control 

environment 

263 Internal Control - Revenue: No control in place to 

prevent electricity losses 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

264 Internal Control - Other financial assets: There are 

 

 

41



Rating 


reported 

Page. no. 

Finding 





report 




deficiency 





matters 


matters 

2009/10 

2008/09 

2007/08 

no proper controls to ensure that interest accrued 

correctly valued 

265 Internal Control - Management do not oversee 

services of service providers 

266 Internal Control - Revenue: No control identified 

reconciling the opening balance of the unspent 

grant income to the annual financial statements 


supervisor observation of general office employees 

signing attendance registers 

267 Internal Control - Related parties: No process in 

place to identify related parties 

387 Internal Control - Other financial assets: Investment 

register is not signed as evidence of review 

388 Internal Control - Provisions: Inaccurate valuation 

on provision for bonuses 

75 Internal Control - There are no controls regarding 

the VAT processes 

268 Internal Control - Minimum competency levels of 

management not monitored 

77 Internal Control - VAT reasonability has not been 

performed 

78 Internal Control - Expenditure: Risk that 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

42



Rating 


reported 

Page. no. 

Finding 





report 




deficiency 





matters 


matters 

2009/10 

2008/09 

2007/08 

expenditure is not classified appropriately 


controls to ensure that back pay for employees is 

recorded in the correct period 

389 Internal Control - Personnel expenditure: No ID 

numbers in the payroll masterfile 

390 Internal Control - Personnel expenditure: 

Supporting documentation not on employee files 

270 Internal Control - Personnel expenditure: Leave is 

not authorised prior to leave taken 

272 Internal Control - Trade and other payables: 

Unspent conditional grants and receipts 

273 Internal Control - Annual financial statements: 

Explanation for variances greater than 10% for 

general expenditure 

274 Internal Control - Personnel expenditure: 

Inconsistencies between leave forms, attendance 

registers and the system 

277 Internal Control - Personnel expenditure: Employee 

files not provided 

80 Internal Control - Trade and other payables listing 

for the prior year not available 

 

 

 

 

 

 

 

 

 

278 Internal Control - Provisions: Opening balances 

 

 

 

 

 

 

 

 

43



Rating 


reported 

Page. no. 

Finding 





report 




deficiency 





matters 


matters 

2009/10 

2008/09 

2007/08 

brought forward to the incorrect votes 

279 Internal Control - SCM horizontal audit 

281 Internal Control - No process in place to identify 

subsequent events 


Fixed asset register fields not complete 

82 Internal Control - VAT is claimed on the accrual 

basis 

 

 

284 Internal Control - Outstanding VAT from SARS 


Additions recorded at the incorrect date on fixed 

asset register 

287 Internal Control - Property transfers not correct on 

system 

83 Internal Control - Investment properties: Investment 

property register fields not completed 

288 Internal Control - Expenditure: Missing timesheets 

for overseers 

289 Internal Control - Expenditure: Missing casual 

wages identification documents 

290 Internal Control - Expenditure: Employee wage 

listing not signed by the employee 

 

 

 

 

 

 

 

 

 

 

 

 

 

44



Rating 


reported 

Page. no. 

Finding 





report 




deficiency 





matters 


matters 

2009/10 

2008/09 

2007/08 

84 Internal Control - Revenue: Journals not authorised 

293 Internal Control - Personnel expenditure: Incorrect 

pension fund and provident fund calculations 

 

 

295 Internal Control - Personnel expenditure: Medical 

aid contributions incorrectly calculated 

 

 

297 Internal Control - Trade and other receivables: 

Indigent debtors applications not complete 

 

 


advertisements on file for appointments 

 

 


curriculum vitae on file for new appointees 

 

 

393 Internal Control - Consumer deposits: No monthly 

reconciliation performed between the consumer 

deposit register and the general 

 

 


deduction of UIF amounts from employees 

 

 

302 Internal Control - Personnel expenditure: Overtime 

taken as off days not able to be verified 

 

 

303 Internal Control - Personnel expenditure: Leave 

population recorded not complete 

 

 


detailed review done on payroll on a monthly basis 

 

 

85 Internal Control - Cash and cash equivalents: 

45



Rating 


reported 

Page. no. 

Finding 





report 




deficiency 





matters 


matters 

2009/10 

2008/09 

2007/08 

Journals processed to Bank votes 

305 Internal Control - Revenue: No agreement for 

income from agency services 

306 Internal Control - Indigent usage of water not 

monitored adequately 


Completeness of capital grant expenditure 

Compliance 

308 Compliance - Section 59 of the Municipal Systems 

Act: No delegation of authority document 

309 Compliance - Other financial assets: Non 

compliance with cash and investing policy 

310 Compliance - Personnel expenditure: Performance 

measurement only at management level 

311 Compliance - SCM: No controls to ensure 

adherence to SCM policy 

312 Compliance - Personnel expenditure: Non 

compliance with section 10 of Basic Conditions of 

Employment Act 


compliance with Section 3.1.4 of the SALBC Main 

Collective Agreement 

 

 

 

 

 

 

 

 

 

314 Compliance - Risk assessment not performed 

 

 

 

 

 

 

46



Rating 


reported 

Page. no. 

Finding 





report 




deficiency 





matters 


matters 

2009/10 

2008/09 

2007/08 

annually 

315 Compliance - Personnel expenditure: No controls to 

ensure compliance with Section 3.1.2 of the SALBC 

Main Collective A 

316 Compliance - Personnel expenditure: Leave days 

taken exceed the available leave balance 


compliance with Basic Conditions of Employment 

Act par 34A(2) 

318 Compliance - Personnel expenditure: Noncompliance 

with section 5 of the Unemployment 

Contributions Act 

86 Compliance - Non compliance by the audit 

committee 

319 Compliance - SCM: Non compliance with SCM 

regulations 

88 Compliance - Provisions: Non-compliance with 

section 20 of the Environmental Conservations Act 

325 Compliance - There are no UIF deductions for 

contract employees in EPWP project 

326 Compliance - Personnel expenditure: PAYE 

calculations are inaccurate 

 

 

 

 

 

 

 

 

 

 

 

 

329 Compliance - Improper budgeting 

 

 

 

 

47



Rating 


reported 

Page. no. 

Finding 





report 




deficiency 





matters 


matters 

2009/10 

2008/09 

2007/08 


with section 3.1.1 of SALBC minimum 

leave provided 


with section 3.1.2 of the SALBC, 

minimum leave taken 

89 Compliance - Trade and other payables: 30 day 

payment terms 

334 Compliance - Personnel expenditure: Third party 

payments 

 

 

 

91 Compliance - Asset management 

338 Compliance - VAT: Output VAT was not disclosed 

on the VAT 201's for grants received 

339 Compliance - Revenue: No interim valuation 

performed in the current year 

92 Compliance - Annual financial statements and 

annual report. 

94 Compliance - Discrepancies noted in approval and 

submission of the tabled 2011/2012 adopted 

budget and budget returns 

340 Compliance - Monthly budget statements 

342 Compliance - Deficiencies identified in the mid-year 

budget and performance assessment 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

48



Rating 


reported 

Page. no. 

Finding 





report 




deficiency 





matters 


matters 

2009/10 

2008/09 

2007/08 

344 Compliance - Adjustment budget for 2010/2011 not 

made public and submitted late to National 

Treasury 

96 Compliance - Revenue management 

346 Compliance - Expenditure: Expenditure incurred 

and not procured through the SCM processes 

347 Compliance - Personnel expenditure: Union fee 

deductions not in terms of signed union fee 

agreements 

99 Compliance - SCM: Procurement process not 

followed in line with the SCM regulations 

103 Compliance - SCM: Deviations from prescribed 

SCM guidances 

110 Compliance - SCM: Not all the required information 

submitted in terms of SCM regulations 

349 Compliance - Trade and other receivables: Notices 

not sent according to the credit control policy 

351 Compliance - Personnel expenditure: Incorrect 

taxable income used for PAYE calculation for 

councillors 

118 Compliance - Personnel expenditure: Councillors 

remuneration exceeds upper limits 

 

 

 

 

 

 

120 Compliance - Expenditure management 

 

 

 

 

 

 

 

 

49



Rating 


reported 

Page. no. 

Finding 





report 




deficiency 





matters 


matters 

2009/10 

2008/09 

2007/08 

122 Compliance - SCM: Deviations from competitive 

bidding process 

352 Compliance - SCM: Listing criteria not specified in 

SCM policy 

353 Compliance - SCM: No rotation of invitations for 

quotations 

354 Compliance - Cash and cash equivalents: Noncompliance 

with section 9(b) of MFMA 

 

355 Compliance - Conditional grants 

126 Compliance - Commitments not correctly disclosed 

in annual financial statements 

356 Compliance - Cash and cash equivalents: No 

minutes available for a facility 

 

 

 

 

128 Compliance - Unauthorised expenditure 

357 Compliance - Section 32(4) reports not sent to 

Auditor General and to MEC 

358 Compliance - Inconsistencies between the annual 

report and annual financial statements submitted 

for auditing purposes 

Annual financial statements 

130 Annual financial statements - Inaccurate 

disclosures 

 

 

 

 

 

 

 

 

 

 

 

50



Rating 


reported 

Page. no. 

Finding 





report 




deficiency 





matters 


matters 

2009/10 

2008/09 

2007/08 

133 Annual financial statements - Disclosure issues 

145 Annual financial statements - Annual financial 

statements incorrectly prepared on going concern 

assumption 

Immovable assets 

146 Property, plant and equipment: No land and 

buildings recorded in the annual financial 

statements 


147 Investment properties - Existence and 

completeness of the investment property register 

Investments 

150 Other financial assets - Classification of 

investments 

Movable assets 

359 Property, plant and equipment - Inaccurate 

correction of prior period error 

 

 

 

 

 

 

 

 

 

151 Property, plant and equipment - Existence, 

valuation and completeness of property, plant and 

equipment 

 

 

51



Rating 


reported 

Page. no. 

Finding 





report 




deficiency 





matters 


matters 

2009/10 

2008/09 

2007/08 

154 Property, plant and equipment - Incorrect 

classification of property, plant and equipment 

361 Property, plant and equipment - Capitalisation of 

valuation roll 

158 Property, plant and equipment - Unable to verify 

that grants relating to capital grant expenditure was 

utilised for its intended 

Operating expenditure 

362 Expenditure - Expenditure relating to special 

projects incorrectly disclosed by function and not 

nature 

160 Expenditure - Projected limitation misstatement due 

to supporting documentation not obtained 

162 Expenditure - Factual disagreement misstatements 

on misstatement of expenditure 

164 Expenditure - Projected disagreement 

misstatements due to inaccurate processing of 

invoices 

167 Expenditure - Misclassification of casual wages as 

operating expenditure 

168 Expenditure - Misstatements relating to journal 

entry testing 

 

 

 

 

 

 

 

 

 

 

 

364 Expenditure - Amount per approved budget does 

 

 

 

 

52



Rating 


reported 

Page. no. 

Finding 





report 




deficiency 





matters 


matters 

2009/10 

2008/09 

2007/08 

not agree to amount per annual financial 

statements 

170 Expenditure - Comparative amounts per prior 

annual financial statements do not agree to 

amounts per general ledger 

366 Expenditure - Fruitless and wasteful expenditure 

identified 

172 Expenditure - Incorrect journal posted to bad debt 

written off expense 

173 Expenditure - No supporting documentation for bad 

debts written off 

174 Expenditure - Factual limitation misstatement due 

to supporting documentation not obtained 

175 Expenditure - Limitation misstatements for prior 

period error testing 

Payable 

177 Trade and other payables - The sub ledger does 

not agree to the trade payables control account 

 

 

 

 

 

 

 

 

 

178 Trade and other payables - Unrecorded liabilities 

182 Trade and other payables - No supporting 

documentation for journals 

 

53



Rating 


reported 

Page. no. 

Finding 





report 




deficiency 





matters 


matters 

2009/10 

2008/09 

2007/08 

Predetermined objectives 

184 Performance information - Non-compliance with 

MFMA section 72 


MFMA sec 32 

185 Performance information - Key performance 

indicators and targets do not meet the relevant 

criteria 

192 Performance information - Not all performance 

objectives contains budget amounts 

369 Performance information - Objectives in the IDP 

that relates to other departments 

195 Performance information - Projects completed in 

the prior year that still shows as an objective in the 

IDP in the current year 

197 Performance information - KPI's on the IDP do not 

correspond to the general KPI's required by MSA 

371 Performance information - Inadequate controls in 

place to ensure that performance targets in the 

annual report are accurate, valid and complete 


MSA section 39 (a) & 40 

 

 

 

 

373 Performance information - Nature of PMS 

 

 

 

 

 

 

 

 

 

 

 

 

54



Rating 


reported 

Page. no. 

Finding 





report 




deficiency 





matters 


matters 

2009/10 

2008/09 

2007/08 

374 Performance information - Format of SDBIP is 

inadequate 


section 46 of the MSA 

205 Performance information - Inaccurate, invalid and 

incomplete reported information 

208 Performance information - Incomplete list of 

account complaints 


section 127 of the MFMA 


section 72(1) of the MFMA 

Provisions 

210 Provisions - Provision for landfill site valuation 

 

 

 

 

 

 

212 Provisions - Inaccurate provision for leave pay 

214 Provisions - IAS 19 treatment on post employment 

benefits 

Receivables 

215 Trade and other receivables - No supporting 

documentation for provision for doubtful debts 


documents for journals 

 

 

 

 

 

 

 

 

 

 

 

55



Rating 


reported 

Page. no. 

Finding 





report 




deficiency 





matters 


matters 

2009/10 

2008/09 

2007/08 

221 Trade and other receivables - Existence of trade 

receivables 

376 Trade and other receivables - Credit balances 

included in receivables balance at year end 

377 Trade and other receivables - Provision for doubtful 

debts does not exist and is not complete. 


documentation for prior year errors disclosed 

Reserves 

222 Accumulated surplus - Opening balance of 2009 on 

the statement of changes in net assets misstated 

223 Accumulated surplus - Opening balance of 2011 on 

the statement of changes in net assets misstated 

 

 

 

 

 

 

 

 

 

 

Revenue 

224 Revenue - Misclassification of revenue 

225 Revenue - Adjustment to trade and other payables 

amount could not be verified 

379 Revenue - No pre-paid electricity estimate reflected 

in the annual financial statements 

226 Revenue - Grant income not all received in the 

current year due to invalid journal entries 

 

 

 

 

 

56



Rating 


reported 

Page. no. 

Finding 





report 




deficiency 





matters 


matters 

2009/10 

2008/09 

2007/08 

380 Revenue - License and permits variance 

227 Revenue - Grants not utilised for its intended 

purposes and misclassification between operating 

and capital grant expenditure 

 

381 Revenue - Incorrect tariffs used for other income 

230 Revenue - Errors on service charges income 

231 Revenue - Errors on journals 

382 Revenue - Interest raised at the incorrect rate 

282 Revenue - No supporting documentation for prepaid 

electricity 

284 Revenue - Incorrect journal entry posted to income 

from agency services 

Taxes 

 

 

232 VAT - Inaccurate VAT reconciliation 

234 VAT - Invalid and inaccurate journal entries 

237 VAT - Output VAT only declared on direct income 

385 VAT - No accounting policy in the annual financial 

statements 

 

 

 

 

57


DETAILED AUDIT FINDINGS 

ANNEXURE A: MATTERS AFFECTING THE AUDITOR’S REPORT 

CASH AND CASH EQUIVALENTS 

1. Cash and cash equivalents - Invalid bank reconciling items 

Audit finding 

In terms of MFMA s98 the Accounting Officer of the Municipality must take all reasonable steps to 

ensure that all accounts of the entity are reconciled monthly. 

During the audit of cash and bank, we noted that the following reconciling items per the bank 

reconciliation were invalid: 

For 2011 

For reconciling items, "Cheques not through the Bank", worth R537 741.63 on the bank 

reconciliation, we tested an amount of R533 128.51 for Eskom. The amount was not a valid 

reconciling item as the payment voucher was recorded onto the system before year end but the 

actual cheque was withheld by the Municipality until after year end and therefore should be 

classified as a payable at year end. No journal has been passed to correct this. 

For 2010 

For items with a description "Receipts issued not on bank statement", we tested R2 235.13 of the 

total balance of R3 552.25, all of these related to receipts of which the date was older than 6 

months of the reconciliation date, so the receipts date was before 1 January 2010. This is not valid 

reconciling items as it is not probable that this cash will be recovered. 

Further items with a description "Deposits received in current year only receipted in following year" 

worth R313 337.81, we tested R298 915.88. The items tested could be vouched to the bank 

statement prior to year end and therefore should have been recorded in the general ledger and not 

as a reconciling item on the bank reconciliation of 2010 as this resulted in the cashbook balance 

being understated in the Annual Financial Statements. 

Further items with a description "Items on GL to be recorded in next financial year" worth 

R66 068.51 of which we tested all the items. These items are not valid reconciling items due to the 

receipts being issued and reflected on the bank statement occurred subsequent to year-end and 

therefore should not have been reflected as reconciling items on the bank reconciliation of 2010 as 

this resulted in the cashbook balance being overstated in the Annual Financial Statements. 

The bank reconciliation is not reconciled on a line for line basis to the general ledger balance on a 

monthly basis. The fact that a journal can be processed to a cashbook control account may result 

in fraudulent transactions. Therefore, invalid reconciling items occur and are not identified and 

corrected on a timely basis. 

The cash and cash equivalents may be misstated in the Annual Financial Statements. 

58


Internal control deficiency 


Prepare regular, accurate and complete financial and performance reports that are supported and 


Design and implement formal controls over IT systems to ensure the reliability of the systems and 

the availability, accuracy and protection of information. 

Recommendation 

The Accountant Expenditure should perform a bank reconciliation on a monthly basis. This should 

include comparing individual transactions posted into the cashbook to entries per the bank 

statement to identify reconciling items. These reconciling items should be investigated to confirm 

that they are valid and long outstanding cheques should be followed up. All invalid reconciling 

items should be corrected and stale cheques should be reversed. The preparer should sign and 

date the reconciliation as evidence of the tasks performed. The reconciliation should be reviewed 

by the Chief Financial Officer and he should sign the reconciliation as evidence of the review 

process. The cashbook general ledger account should be a control account. A capturer should be 

prohibited by the system from processing directly into the cashbook control account. The cashbook 

control account should be a default account of all entry types relating to payments or receipts. 

Management response 

Management agreed with the audit finding and root cause and will implement the recommendation. 

Auditor’s conclusion 

Management response is noted, however, this matter will be evaluated upon receipt of the final 

financial statements. 

59


2. Cash and cash equivalents - Adjustments to opening balance not traceable back to the 

system 

Audit finding 

In terms of the Municipal Finance Management Act, section 62 (1) (c), “the accounting officer of a 

municipality is responsible for managing the financial administration of the municipality, and must 

for this purpose take all reasonable steps to ensure that the municipality has and maintains 

effective, efficient and transparent systems of financial and risk management and internal 

control.” 

During the testing of journals relating to cash and bank for the prior period error processed, no 

supporting documentation could be obtained for the following journals entries: 

30-Jun-11 CT Lab (Pty) Ltd 34,884.00 

30-Jun-11 Piet Viljoen Motors 6,578.95 

30-Jun-11 Posgeld 20,159.10 

30-Jun-11 Telefoon 16,426.55 

30-Jun-11 Gratis dienste 18,223.34 

30-Jun-11 Lone & Salarisse 53,200.00 

30-Jun-11 Herstelwerk - Voertuie 9,694.27 

30-Jun-11 Trade Creditors 517,800.72 

30-Jun-11 Salary Control Account 148,896.67 

30-Jun-11 Surplus Appropriation -92,892.99 

30-Jun-11 Bad Debts -82,323.40 


30-Jun-11 Motorlisensies -77,669.50 


The total limitation is an overstatement of R218 012.08. 

The abovementioned journals were also not signed by the person authorising the journal. 

The Municipality processed journals to the bank vote to get their bank reconciliation to balance. 

Cash and cash equivalents is overstated by R218 012.08. 




evidenced by reliable information 


The Municipality should take responsibility to review, authorize and ensure that the journals 

processed by the service providers are supported by valid documentation. 

60





Management response is noted, however, this matter will remain for follow up next audit. 

61


3. Cash and cash equivalents - No supporting documentation for journal entries 

Audit finding 

According to MFMA section 62(1)(c), the accounting officer of a municipality is responsible for 

managing the financial administration of the municipality, and must for this purpose take all 

reasonable steps to ensure that the municipality has and maintains effective, efficient and 

transparent systems of financial and risk management and internal control. 

During the testing of the journal entries no supporting documentation could be obtained for the 

following journal entries for 2011: 

30-Jun-11 Divident inkomste 4,344.86 

30-Jun-11 Huur Ontvang -11,729.04 

30-Jun-11 Verkope – Vooruitbetaling -2,000.00 

30-Jun-11 Debtors Account -524.90 

30-Jun-11 Opleiding – Ekst 733.85 

30-Jun-11 Advertensies 0.02 

30-Jun-11 Brandstof & Olie 316.41 

30-Jun-11 Druwerk 90.69 

30-Jun-11 Telefoon 6,025.06 

30-Jun-11 Meubels & toerusting 6.70 

30-Jun-11 Salarisse & Lone 240.00 

30-Jun-11 Bank koste -1,056.00 

30-Jun-11 Communication -163.80 

30-Jun-11 Sport -450.00 

30-Jun-11 Product Development -0.01 

30-Jun-11 Spesiale Projekte -2,250.00 

30-Jun-11 Salarisse & Lone -19,610.00 

30-Jun-11 Herstelwerk Ontvang 250.00 

30-Jun-11 Herstelwerk Ontvang 2,182.61 

30-Jun-11 Herstelwerk -4,384.03 

30-Jun-11 Salary Control Account 20,936.43 

30-Jun-11 Vat Account 433.17 

30-Jun-11 Year End Function 5,000.00 

30-Jun-11 Gesondheid - Inkomste Subsidie -26,482.45 

30-Jun-11 Bad debts -174,420.83 

30-Aug-11 Schools Account -167,014.25 

The total limitation understatement is R369 525.51. 


Cash and cash equivalents is understated by R369 525.51. 




evidenced by reliable information 

62



The bank clerk should perform a bank reconciliation monthly and follow up and resolve all 

discrepancies timeously. The CFO should review the reconciliation monthly to ensure that all 

reconciling items are valid and substantiated by valid supporting documentation. 





63


EMPLOYEE COSTS 

4. Personnel expenditure - Overtime, assistance allowances and back pay calculated 

incorrectly 

Audit finding 





control.” 

During the audit, we noted that the gross remuneration of some employees was calculated 

incorrectly due to variances in overtime, assistance allowances and back pay. Details of these 

discrepancies are listed below: 

Overtime: 

The rates used to calculate the overtime for these employees was not in accordance with the 

overtime policy of the Municipality: 

Employee Name Employee Month Payslip Recalculated Difference 

Number 

amount 

NM De Kella 12 Oct 10 R523.53 R439.71 R83.82 

NM De Kella 12 Nov 10 R1 047.06 R879.41 R167.65 

F De Jager 20 Jul 10 R2 050.50 R776.80 R1 273.70 

K Jordaan 29 Jan 11 R620.77 R509.10 R111.67 

P Golozana 32 May 11 R2 799.68 R2 488.23 R311.45 

M Van Vuuren 115 Sep 10 R1 700.60 R1 082.03 R618.57 

M Van Vuuren 115 Jan 11 R3 729.72 R2 125.42 R1 604.30 

IB Orsmond 128 Aug 10 R1,951.82 R1 487.80 R464.02 

IB Orsmond 128 Oct 10 R4,560.70 R4 451.79 R108.91 

AC Brown 151 Nov 10 R570.09 R295.63 R274.46 

S Piper 156 Mar 10 R1 012.20 R758.25 R253.95 

Assistance Allowances: 

The assistance allowances are based on the number of hours of standby time that was required 

from the employees for the month as well as night time hour allowances for time worked at night. 

The number of standby and night time hours recorded on the system did not agree to the hours 

verified by the audit team from the authorization forms. These differences are listed below: 

Employee 

Employee Month Payslip Recalculated Difference 

Number 

Amount 

Boois 18 Apr 11 R337.03 R379.16 -R42.13 

F De Jager 20 Jul 10 R511.50 R307.26 R204.24 

P Golozana 32 Mar 11 R745.50 R717.10 R28.40 

Back pay: 

Back pay was calculated as the difference between the salary per the post levels as determined by 

SALGBC and the employee’s current salary for a period of 9 months stretching from October 2009 

to June 2010. We identified the following variances when recalculating the back pay using this 

formula. 

64


Employee Employee Month Payslip Recalculated Difference 

Number 

Amount 

A Boois 18 Apr 11 R18 438.26 R12 114.67 R6 323.59 

F Arries 68 Feb 11 R14 358.97 R14 000 R358.97 

The Municipality could not explain these variances. 

These discrepancies have resulted in an extrapolated factual misstatement of R108 868.04. 

The payroll run inputs are not reviewed to identify and correct discrepancies in the calculation of 

allowances and overtime that is paid out to the employees. 

This results in an overstatement of Personnel Expenditure and understatement of Trade and other 

receivables in the Annual Financial Statements. 


Leadership 

Provide effective leadership based on a culture of honesty, ethical business practices and good 

governance, protecting and enhancing the best interests of the entity. 




Financial and Performance management 

Implement proper record keeping in a timely manner to ensure that complete, relevant and 

accurate information is accessible and available to support financial and performance reporting 


All inputs included in the monthly payroll run should be reviewed by the Chief Financial Officer by 

agreeing the variables such as hours and rates to the relevant supporting documentation and 

authorisation forms. Any variances should be corrected before the final payroll run is performed. 

The payroll run should be signed as evidence of the review function performed. 

The supporting documentation for the payroll run inputs should be filed along with the payroll run to 

facilitate easy retrieval of the information when required. 





65


5. Personnel expenditure - Payroll schedule does not reconcile to annual financial 

statements 

Audit finding 





The Payroll schedule, R15 479 588.78, does not reconcile to the amount recorded in the Annual 

Financial Statements, R15 528 278.16. The difference of R48 689.38 is not evidenced by valid 

supporting documentation. 

A reconciliation between the payroll and the expense in the general ledger is not 

performed monthly and therefore differences between the payroll system and the general ledger 

are not identified, followed up and resolved timeously. 

Payroll expenditure may be invalid or misallocated to the incorrect account. This may result in the 

annual financial statements being misstated. 






A reconciliation between the payroll and the general ledger should be performed monthly and 

differences should be followed up and resolved timeously. Management should review the 

reconciliation process and ensure that the differences are resolved appropriately. All reconciling 

items should be supported by valid supporting documentation. 





66



6. Internal Control - Property, plant and equipment: Fixed asset register only updated at 

year end 

Audit finding 

In terms of section 63(2)(b) & (c) of the Municipal Finance Management Act No. 56 of 2003 63 the 

accounting officer must for the purposes of subsection (1) take all reasonable steps to ensure that 

the municipality’s assets and liabilities are valued in accordance with standards of generally 

recognised accounting practice; and that the municipality has and maintains a system of internal 

control of assets and liabilities, including an asset and liabilities register, as may be prescribed. 

Through enquiry of the Chief Financial Officer, it was noted that the fixed asset register is only 

updated at year-end. 

The internal control over updating of the fixed asset register is not monitored adequately. 

Movements in fixed assets are not adequately recorded throughout the year and it could result in 

difficulty in establishing completeness and existence of fixed assets. This also indicates poor asset 

management. 



Implement controls over daily and monthly processing and reconciling of transactions 


An appropriate and complete fixed asset register should be maintained on a monthly basis. 

The fixed asset register should be reconciled to the general ledger on a monthly basis and any 

discrepancies should be followed up timeously. The reconciliation should be reviewed by senior 

personnel to ensure all reconciling items are resolved or appropriate. 



Management is in the process of verifying all assets and additions to be brought onto the fixed 

asset register and will supply an updated fixed asset register at year-end. 



67


7. Internal Control - Cash and cash equivalents: Inaccurate bank reconciliation 

Audit finding 





During the understanding of the FSCP cycle, it was noted that the January 2011 bank 

reconciliation was not completed accurately. The bank statement balance included on the bank 

reconciliation reflected R2 238 509, whereas the actual bank statement balance was R2 245 509. 

The cashbook balance included on the bank reconciliation reflected R1 842 927.52, whereas the 

actual cashbook balance per SAMRAS DB4 was R4 234 335.22. Per Altimax (Consultants) the 

bank reconciliations for the past two years were not correct, they will be redone for the past two 

years (2009 and 2010 year of assessment). 

The staff is not adequately skilled to perform a bank reconciliation. The CFO does not review the 

bank reconciliation or follow up on the validity and accuracy of reconciling items. 

This may result in the misappropriation of cash, resulting in fraudulent report and a financial loss to 

the Municipality. 


Leadership 

Establish and communicate policies and procedures to enable and support understanding and 

execution of internal control objectives, processes and responsibilities. 


The bank reconciliation should be performed on a monthly basis by the Chief Accountant and all 

reconciling items should be followed up and resolved timeously. The reconciliation should be 

reviewed and approved (signed) by the Chief Financial Officer and any queries followed up and 

resolved timeously. Reconciliations for the past two financial years should be redone by Altimax 

and approved by the CFO. 




Management response is noted, however as this is a fundamental monthly control, this matter will 

be reported as an internal control deficiency. 

68


8. Internal Control - Trade and other payables: Payable reconciliations are not performed 

Audit finding 

Section 62(1) of the Municipal Financial Management Act (MFMA) No. 56 of 2003 states inter alia 

that the accounting officer is responsible for managing the financial administration of the 

municipality, and must for this purpose take all reasonable steps to ensure: 

(b) that full and proper records of the financial affairs of the municipality are kept in accordance 

with any prescribed norms and standards; 

(c)(i) that the municipality has and maintains effective, efficient and transparent systems of 

financial and risk management and internal control. 

Section 63(1)(b) of the MFMA states that the accounting officer is responsible for the management 

of liabilities of the municipality. Subsection 2(a) further states that the he accounting officer must 

for the purposes of subsection (1) take all reasonable steps to ensure that the municipality has and 

maintains a management, accounting and information system that accounts for the assets and 

liabilities of the municipality. 

Section 65(2) of the MFMA inter alia requires that the accounting officer take all reasonable steps 

to ensure that: 

(c) 

(j) 

that the municipality has and maintains system of internal control in respect of creditors and 

payments; 

that all financial accounts of the municipality are closed at the end of each month and 

reconciled with its records. 

The Municipality does not perform payable reconciliations on a monthly basis or as at year-end. 

The CFO does not enforce controls to ensure compliance and accurate and complete financial 

reporting. 

Payables and expenses may not be complete or exist due to inaccurate and incomplete processing 

of vendor invoices and payments. Duplicate payments may occur and remain undetected resulting 

in a financial loss to the Municipality. 


Leadership 

Exercise oversight responsibility regarding financial and performance reporting and compliance 

and related internal controls. 


Management should implement and monitor controls over the financial administration process by 

ensuring that payable reconciliations are prepared on a monthly basis. Reconciliations should be 

performed, discrepancies followed up and resolved timeously and reviewed by management 

for completeness, accuracy and validity. Officials should make a concerted effort to obtain supplier 

statements from creditors while evidence of all reconciling items should be maintained and 

provided for audit purposes. 



69



Management response is noted, however as this is a very important monthly control and this 

matter will remain as an internal control deficiency. 

70


9. Internal Control - Trade and other payables: No review of payments processed onto the 

system 

Audit finding 





Whilst obtaining an understanding of the controls around recording of payments it was noted that 

although the payment vouchers were being authorised by the CFO, there were no controls to 

review the amounts processed onto SAMRAS DB4. Compensating controls usually include the 

performance and review of bank and creditors reconciliations. Based on other audit findings it was 

however determined that the bank reconciliations are not accurate and no creditors reconciliations 

are performed. 

Management does not place enough emphasis on the importance of independent management 

review and controls to prevent irregularities. 

This may result in the cashbook balance and payable balances being misstated. 


Leadership 




After the processing of a payment batch, a payment report should be generated and agreed to the 

supporting documentation. The person tasked with this responsibility should sign the payment 

report as evidence that this task has been performed. Bank reconciliations and payable 

reconciliations should be performed and reviewed by management. 




Management response is noted, however, this matter will remain for follow up next audit. Detailed 

substantive audit procedures have been designed to address these issues and any findings will be 

reported on separately. 

71


10. Internal Control - Trade and other payables: No controls to ensure all invoices and 

accruals are recorded in the correct period. 

Audit finding 





During our process of obtaining an understanding of the purchase and payments transaction flow it 

was noted that there are no controls in place to confirm that invoices are recorded in the correct 

period and that accruals are correctly raised at year-end. 

The municipality is recording expenses on the payments basis and not the accrual basis. 

Payables and expenditure may be misstated in the financial records. 



Implement controls over daily and monthly processing and reconciling of transactions. 


Management should generate a printout of the transactions recorded in the general ledger 

and review and sign the report to confirm that transactions have been recorded in the correct 

financial period (inspect the invoice date). The accountant expenditure a nd the manager 

expenditure should follow up and resolve issues timeously. The bank statements for July and 

August should be scrutinized to identify invoices paid subsequent to year-end, are dated prior to 

year-end and ensure the accrual has been raised. All unmatched purchase orders and goods 

received notes should be scrutinized to determine whether the goods and services have been 

received prior to year-end and that the appropriate accrual has been raised. 





audit procedures will be performed to address this finding and any issues will be reported on 

separately. 

72


11. Internal Control - Personnel expenditure: The payroll system is not reconciled to the 

general ledger on a monthly basis 

Audit finding 





We noted that the payroll sub-system is not reconciled to the general ledger on a monthly basis. 

The gross salary amount per the general ledger for January 2011 amounted to R1 216 306.15, 

whereas the balance per the salary run was R1 086 073.26. 

The reconciliation of the total cost to company between the payroll sub-ledger and the general 

ledger at year-end resulted in a difference of R48 689.38. 

Management does not place emphasis on the implementing of controls to ensure accurate 

financial reporting. 

Employee related costs, salary payables and staff receivables balances may be misstated in the 

financial statements. Errors including fictitious employees might go undetected which increases the 

risk of fraud and could result in financial loss to the municipality. 






A reconciliation between the payroll and the general ledger should be performed monthly and 

differences should be followed up and resolved timeously. Management should review the 

reconciliation process and ensure that the differences are resolved appropriately. All reconciling 

items should be supported by valid supporting documentation. 





73


12. Internal Control - Personnel expenditure: There are no controls to ensure that the leave 

pay provision is accurate 

Audit finding 





During our process of obtaining an understanding of the computation of the leave pay accrual, it 

was noted that as a result of the centralised HR department, the controls around ensuring that the 

provision for leave pay computation is accurate were not appropriate. The computation was done 

using a leave summary report generated manually for 30 June 2011; this report was also not 

reviewed by the Manager: Corporate Services. 

Management has not instituted any controls to ensure that the provision for leave pay is accurate. 

The leave pay accrual and employee related costs may be misstated in the financial records. 


Leadership 




The leave form should be authorized by the payroll clerk, following the authorization of the 

appropriate supervisor to ensure that the employee has sufficient leave available. 

The payroll clerk should then update the excel spreadsheet with the actual approved leave forms 

for each employee and file the leave form on the employee file. 

The leave balances should be reviewed by the Manager: Corporate Services by ensuring that 

balances in the excel schedule agree to the balance per individual employee files per approved 

forms. 

To calculate the leave pay provision the Expenditure: clerk should insert the the cost to company 

into the excel spreadsheet containing the leave days. The calculation should be reviewed by 

Accountant: Expenditure. 





74


13. Internal Control - Personnel expenditure: No controls to confirm that all leave forms 

approved are processed 

Audit finding 





During our process of obtaining an understanding of the leave processing cycle, we were unable to 

identify a control in place to confirm that all approved leave forms are processed onto the system. 

Although there is a register where all leave forms received are documented, there is no control to 

confirm that all leave forms are received by the HR practitioner. 

Management does not place enough emphasis on independent reviewing and controls to prevent 

irregularities. 

This may result in employees being compensated for days not worked therefore resulting in 

a financial losses to the Municipality. The expenditure will be considered fruitless and wasteful as 

defined by the MFMA. 

The accrual for leave pay and employee related cost may be misstated in the financial statements. 

Accumulated leave of employees could incorrectly exceed the maximum of 48 days as stipulated 

by Section 3.1.4 of SALBC Main Collective Agreement. 


Leadership 




The payroll clerk should generate a report using excel of all outstanding leave balances at year 

end for all employees, this should be done using actual approved leave forms for each employee. 

The leave balances should be reviewed by Manager: Corporate Services by ensuring that 

balances in the schedule agree to the balance per individual employee files per approved forms. 





75


14. Internal Control - There are no controls regarding the VAT processes 

Audit finding 





There are no controls regarding the treatment and recording of VAT to ensure that VAT is correctly 

treated. 

The individual transactions for the period 1 November 2010 to 31 December 2010 per the Input 

VAT (Vote 300350015) amounted to R646 417, whereas the balance per the VAT 201 was 

R627 310.28 and Output VAT (Vote 300350031) amounted to R201 820.36, whereas the balance 

per the VAT 201 was R102 851.12. 

The VAT 201 for the period of November to December reflected a VAT receivable of R524 459.16. 

There is no evidence of management reconciling and reviewing the reconciliation of the receivable 

per the general ledger to the outstanding VAT201's. The CFO prepares the VAT 201's and submits 

them without any review process performed. 

Upon inspection of the VAT 222 relating to the above amount, it was noted that there are no 

controls in place to ensure that the amount is correctly recorded. 

This is caused by the CFO drawing the reports for input and output VAT and then adjusting these 

reports to complete the VAT201's. These adjustments are however not processed in the general 

ledger. The input and output general ledger accounts are not used to compile the VAT201's. The 

CFO does not perform a reconciliation of the VAT receivable account to the outstanding VAT201's 

and receipts monthly to identify reconciling items, which should be resolved timeously. 

This will result in the Municipality not being able to detect whether all the expenditure and income, 

which is subject to VAT, is taken into account. The VAT receivable may be misstated in the Annual 

Financial Statements, non-adherence with VAT Legislation and errors in the VAT 201's will go 

undetected. This may result penalties and interest being incurred, which will result in fruitless and 

wasteful expenditure. 


Leadership 




The Chief Accountant should use the input and output VAT general ledger accounts to prepare the 

VAT 201. All adjustments made to the compilation of the VAT201 should be processed into the 

general ledger. The CFO should review the process for accuracy and compliance and sign as 

evidence of review. The VAT receivable account in the general ledger should be reconciled to the 

VAT 201's on a monthly basis and the CFO should sign as evidence of review. The VAT 222 

refunds received and recorded in the general ledger should be agreed to the bank statement by 

the Accountant: Expenditure. 

76






77


15. Internal Control - VAT reasonability has not been performed 

Audit finding 





The CFO does not perform a VAT reasonability calculation regularly to monitor the accurate 

treatment of VAT. The VAT reasonability calculation requested in RFI 21 issued on 30 August 

2011 and due on the 02 September 2011 was not presented to the audit team. The VAT control 

account is not reconciled to the VAT201's submitted as well as the receipts and payments received 

and made to SARS. 

VAT reconciliations are not performed monthly to ensure that the VAT receivable/payable at month 

end agrees to the VAT201's submitted as well as the receipts and payments incurred from and to 

SARS. Due to these discrepancies not being identified and resolved monthly makes it challenging 

to perform a VAT reasonability. 

This may result in a limitation of scope on our work, as we are unable to confirm the valuation, 

completeness and existence of the VAT receivable balance at year-end. 





The VAT receivable/payable at month end should be reconciled to the VAT201's submitted as well 

as the receipts and payments received or made to SARS. All discrepancies should be followed up 

and resolved timeously. Management should review this process to ensure that the VAT control 

account is valid and accurate. The municipality should then be able to perform an accurate VAT 

reasonability at year-end if monthly VAT reconciliations are maintained and performed. 





78


16. Internal Control - Expenditure: Risk that expenditure is not classified appropriately 

Audit finding 

MFMA section 8, regulation 62 (a) requires: 

The accounting officer of the municipality is responsible for managing the financial administration 

of the entity, and must for this purpose take all reasonable steps to ensure that the entity has and 

maintains effective, efficient and transparent systems 

 

that the resources of the municipality are used effectively, efficiently and economically 

Risk identification procedures indicated that the Chief Financial Officer could not provide the audit 

team with sufficient explanations for movements in expenditure items from the prior year for the 

following items: 

Account description 2011 2010 Variance 

Administration fees 24,292.00 51,832.00 -53.1% 

Advertising 76,094.00 65,899.00 15.5% 

Capital expenditure 54,706.00 335,767.00 -83.7% 

Chemicals 113,312.00 128,919.00 -12.1% 

Cleaning - 12,095.00 -100.0% 

General expenses transferred from grants 3,243,058.00 8,538,139.00 -62.0% 

Other expenses 13,440.00 15,600.00 -13.8% 

Postage and courier 130,230.00 87,657.00 48.6% 

Printing and stationery 188,005.00 160,076.00 17.4% 

Promotions - 60,000.00 -100.0% 

Provision for doubtful debts - 105,845.00 -100.0% 

Refuse 56,325.00 46,352.00 21.5% 

Special projects 1,036,057.00 640,896.00 61.7% 

In addition to this, the Chief Financial Officer indicated that penalties received from SARS due to 

the fact that the Municipalities power usage exceeds the allotted capacity of 1500 KVA per 

month are recorded in the Bulk purchases vote. 

Inefficient monitoring of expenditure throughout the year as well as a lack of review of expenditure 

allocation to the different categories and votes. 

Expenditure may not be classified appropriately. This prevents the adequate monitoring of 

expenditure versus the budget to ensure the Municipality operates efficiently and effectively. 


Leadership 




Management should identify and investigate the expenditure variances between the 

prior and current year and budget versus actual expenditure in the current year. Adequate 

explanations for the variances should be documented and resolved appropriately. Management 

should review this process to ensure that the appropriate resolution is followed. Management 

should also ensure that expenditure is recorded in the correct vote. 

79






80


17. Internal Control - Trade and other payables listing for the prior year not available 

Audit finding 

Section 62(1) of the Municipal Financial Management Act (MFMA) No. 56 of 2003 states inter alia 

that the accounting officer is responsible for managing the financial administration of the 

municipality, and must for this purpose take all reasonable steps to ensure: 





Section 63(1)(b) of the MFMA states that the accounting officer is responsible for the management 

of liabilities of the municipality. Subsection 2(a) further states that the he accounting officer must 

for the purposes of subsection (1) take all reasonable steps to ensure that the municipality has and 

maintains a management, accounting and information system that accounts for the assets and 

liabilities of the municipality. 

Section 65(2) of the MFMA inter alia requires that the accounting officer take all reasonable steps 

to ensure that: 

(c) 

(j) 

that the municipality has and maintains system of internal control in respect of creditors and 

payments; 

that all financial accounts of the municipality are closed at the end of each month and 

reconciled with its records. 

The municipality was not able to provide a list of payables supporting the prior year payables per 

the annual financial statements. Therefore, it was not possible to perform a comparative analytic to 

the prior year’s payables listing. 

The controls regarding the record keeping in the municipality is not effective or monitored. An audit 

file is not maintained to support the Annual Financial Statements as at 30 June 2011. 

Management is not able to perform an assessment to ensure that all payables per the prior year 

are recorded in the current year. This may result in the payables not being complete and therefore 

misstatement of the Annual Financial Statements. 




accurate information is accessible and available to support financial and performance reporting. 


Management should implement and monitor controls over the financial administration process by 

ensuring that all reconciliations and supporting documentation is filed methodically to support the 

figures reported in the Annual Financial Statements. 



81




82


18. Internal Control - VAT is claimed on the accrual basis 

Audit finding 

Section 15 of the VAT Act states: 

15. Accounting basis. – 

2) Subject to the provisions of subsections (2A) and (3), the Commissioner may/ on application in 

writing by the vendor, direct that the vendor account for tax payable on a payment basis for 

purposes of section 16 with effect from the vendor’s registration in terms of this Act or, where 

he has accounted for tax payable on an invoice basis prior to making an application under this 

subsection, from the commencement of this tax period immediately following the tax period 

during which that direction is made by the Commissioner, if – 

(a) the vendor is a public authority 

Detail testing on VAT indicated that all VAT transactions are recorded in the 3 00335 001 5 VAT 

account on the accrual basis and once the expense/additions are paid the VAT portion will 

automatically transfer from the 3 0035 001 5 VAT account to the 3 0035 002 5 VAT account. We 

verified that the VAT 201's are being compiled from the 3 0035 001 5 VAT account and that the 

Municipality incorrectly claims VAT on the accrual basis and not the cash basis. 

The Municipality does not have sufficient resources with appropriate skills and knowledge to 

perform financial tasks. 

The Municipality is in non-compliance with the VAT Act. SARS may impose penalties and 

interest on the Municipality for VAT claimed on the accrual basis, resulting in a financial loss to the 

Municipality, and therefore fruitless and wasteful expenditure. 


Leadership 




Input tax on the VAT 201's should be compiled from the 3 003 002 5 VAT account. This will ensure 

that the Municipality only claims VAT on the cash basis and not the accrual basis. 





83


19. Internal Control - Investment properties: Investment property register fields not 

completed 

Audit finding 






For the assets recorded on the investment property register, the following fields were not 

completed: 

- Purchase date 

- Description of asset 

- Disposal date 

- Amount received for disposal of fixed asset and resultant profit or loss on the disposal 

- Physical condition of the asset 

The Investment Property Register is not updated and reconciled to the general ledger monthly. The 

Chief Financial Officer does not review the validity, accuracy and completeness of the Investment 

Property Register or the allocations to the general ledger on a monthly basis. 

Misappropriation of assets may occur resulting in a financial loss to the Municipality and 

misstatement of Property, Plant and Equipment in the Annual Financial Statements. 


Leadership 


and related internal controls 


The Investment Property register should have all required fields completed when acquiring new 

properties. The Investment Property Register should be reconciled to the general ledger on a 

monthly basis and the Chief Financial Officer should review the process monthly. 





84


20. Internal Control - Revenue: Journals not authorised 

Audit finding 





During the testing of journals relating to revenue we have noted the following journals that are not 

signed by either the preparer, capturer or authorising person. 

The following journals have been signed by the preparer and capturer, but not by the authorising 

person: 5853, 5867, 5912, 5939, 5965, 5815, 5904, 5817 

The following journals have only been signed the preparer and not by either the capturer or 

authorising person: 916, 920 

The following journals have only been signed the capturer and not by either the preparer or 

authorising person: 5889, 5887, 910 

The signature for prepare and authorising person is the same and also not signed by the capturer 

for the following: 912, 911 

Management do not realise the emphasis that must be put on the review process of journals. 

Invalid journals may be processed resulting in fraudulent reporting and misstatement of the Annual 

Financial Statements. 


Leadership 




Segregation of duties should be implemented in the journal process. 





85


21. Internal Control - Cash and cash equivalents: Journals processed to Bank votes 

Audit finding 





During our testing performed, we have identified several journals that were processed to the cash 

and bank votes. There should be no journals processed to the bank vote, the bank vote is a control 

account, which means that it is a default account for all payments and receipts processed. This 

creates a risk of fraudulent reporting to the Municipality. 


This results in a risk of fraudulent reporting to the Municipality, which may result in a financial loss 

to the Municipality. 


Leadership 




The SAMRAS system should be set up to prevent any transactions being processed to the bank 

control account besides being a default account for all payments and receipts processed. 





86


COMPLIANCE 

22. Compliance - Non compliance by the audit committee 

Audit finding 

In terms of Municipal Finance Management Act, section 166 (2), “An audit committee is an 

independent advisory body which must advise the municipal council the political office-bearers, the 

accounting officer and the management staff of the municipality... on matters relating to internal 

financial control and internal audits; risk management; accounting policies; the adequacy, 

reliability and accuracy of financial reporting and information; performance management; effective 

governance; compliance with this Act, the annual Division of Revenue Act and any other applicable 

legislation; performance evaluation; and any other issues referred to it by the municipality.” In 

addition, “the audit committee must review the annual financial statements to provide the council of 

the municipality with an authoritative and credible view of the financial position of the municipality 

or municipal entity, its efficiency and effectiveness and its overall level of compliance with this Act, 

the annual Division of Revenue Act and any other applicable legislation, respond to the council on 

any issues raised by the Auditor-General in the audit report; carry out such investigations into the 

financial affairs of the municipality as the council of the municipality may request; and perform such 

other functions as may be prescribed. 

In terms of Municipal Finance Management Act, section 166 (4)(b), the audit committee must have 

at least four meetings during the financial year under review. 

In terms of Municipal Finance Management Act, section 166 (2)(a), the audit committee advised 

the municipal council, the political office-bearers, the accounting officer and the management staff 

of the municipality, or the board of directors, the accounting officer and the management staff of 

the municipal entity, on matters relating to performance management. 

The performance audit committee or another committee functioning as the performance audit 

committee must perform the following as required by Municipal Planning and Performance 

Management Regulation 14: review the quarterly reports of the internal auditors on their audits of 

the performance measurements of the municipality submit an auditor’s report to the council 

regarding the performance management system at least twice during the financial year. 

The Audit Committee function is a monitoring activity. Any weaknesses identified in the functioning 

of the Audit Committee is considered a breakdown in the Control Environment. 

Further inspection revealed that the following did not occur: 

In terms of the MFMA sec 166(2)(a)(iii)&(viii) the Audit Committee should advise council, political 

office bearers, the accounting officer and the management staff on matters relating to accounting 

policies and performance evaluation. We could not obtain any evidence that these functions have 

been performed. 

In terms of the MFMA sec 166(2)(b) the Audit Committee should review the annual financial 

statements to provide the council of the municipality with an authoritative and credible view of the 

financial position of the municipality and its efficiency and effectiveness and its overall level of 

compliance with this Act, the annual Division of Revenue Act and any other applicable legislation. It 

was noted that the Audit Committee did not review the financial statements before submission for 

audit purposes. 

In terms of the MFMA sec 166(4)(b) and paragraph 4.2 of the audit committee charter, the audit 

committee should meet at least four times per annum. It was noted that there were only three 

meetings held during the financial year under review. 

87


In terms of the MFMA sec 166(2)(2) and paragraph 5.1.8 of the audit committee charter, the 

audit committee should review reports from the internal audit and the Auditor General in respect of 

performance management and recommendations to management. The committee must: 

- Review the quarterly reports on performance information submitted to it by the internal audit. 

- Review the organisation's performance information systems, focusing on economy, efficiency, 

effectiveness and impact as far as the key performance indicators and performance targets set 

by Council are concerned. 

There is however no evidence that this function is being performed by the audit committee. 

We could not obtain any evidence that the audit committee performed the following functions as 

required by Municipal Planning and Performance Management Regulation 14: review the quarterly 

reports of the internal auditors on their audits of the performance measurements of the municipality 

submit an auditor’s report to the council regarding the performance management system at least 

twice during the financial year. 

The audit committee is, as a result of all the above-mentioned issues, considered not to be 

effective in the performance of its oversight role and the discharging of its responsibilities in terms 

of the Audit Committee charter. 

The audit committee did not always receive the required information from the accounting officer 

and chief financial officer on a timely manner to enable them to perform their duties and 

responsibilities. 

The weaknesses identified indicate a breakdown in the Internal Control of the Municipality. 

The audit committee was ineffective in the performance of its duties in terms of its mandate and 

best practice. 


Governance 

Ensure that the audit committee promotes accountability and service delivery through evaluating 

and monitoring responses to risks and providing oversight over the effectiveness of the internal 

control environment including financial and performance reporting and compliance with laws and 

regulations. 


The Audit Committee should play an oversight role and should ensure that they meet at least four 

times a year and establish a Performance Audit Committee and that it functions effectively in terms of an 

approved charter. 





88


23. Compliance - Provisions: Non-compliance with section 20 of the Environmental 

Conservations Act 

Audit finding 

Per Section 20 of the Environment Conservation Act, 1989, 

No person shall establish, provide or operate any disposal site without a permit issued by the 

Minister of Water Affairs and that Minister may 

a) issue a permit subject to such conditions as he may deem fit; 

b) alter or cancel any permit or condition in a permit; 

c) refuse to issue a permit: 

Provided that such Minister may exempt any person or category of persons from obtaining a 

permit, subject to such conditions as he may deem fit. 

As per inspection of the audit steering committee minutes of 05 July 2011 and the 2009/2010 

management report, we verified that the Municipality operates the landfill site without a valid permit 

as required by section 20 of the Environmental Conservations Act. 

The Municipality failed to implement the 2009/2010 action plans, due to the late finalisation of the 

2009/2010 audit report. 

Non-compliance with section 20 of the Environmental Conservations Act of 1989, which may result 

in penalties being fruitless and wasteful expenditure. 


Leadership 




The Municipality should apply for a permit from the Minister of Water Affairs to operate the landfill 

site legally. This will ensure that the Municipality complies with section 20 of the Environmental 

Conservations Act and is eligible to operate the landfill site. 



An application has been made in order for the Municipality to comply. 



89


24. Compliance - Trade and other payables: 30 day payment terms 

Audit finding 

Section 65(1) of the Municipal Finance Management Act No 56 of 2003 states that the accounting 

officer is responsible for the management of the expenditure of the municipality. 

Subsection (2)(e) further states that the accounting officer must for the purpose of subsection (1) 

take all reasonable steps to ensure that all money owing by the municipality be paid within 30 days 

of receiving the relevant invoice or statement, unless prescribed otherwise for certain categories of 

expenditure. 

During the understanding of creditors system, it was noted that invoice number 389 dated 

8 December 2010 amounting to R2 046 from Waltons (Pty) Ltd, for the purchase of stationery was 

only paid on 26 January 2011 (payment voucher number 7293). This indicates that during the 

period, the controls around ensuring that payables are paid within 30 days are not operating. 

Instances noted during the expenditure execution phase of the Audit: 

PMT Voucher Description Amount 

6550 Audit cost R15 621.6 

6646 Audit cost R1 284 

6797 Audit cost R1 110.51 

7167 Audit cost R7 7315 

8101 Cement All Purpose R145.2 

10901 Duim spykers R15.24 

8103 Pik R399.6 

7698 Fan belt R56.37 

7355 Compr Male Tee R1 560.9 

7780 Credenza Senator 900 x 450 Oak R1 802.63 

7237 Threaded Tape R35.09 

7516 25 X 3/4 Male Adaptor R447.36 

7689 Coupler 22x15 CXC Comp R614.91 

7689 Tee Equalcom CXCXFI 15mm R417.89 

7861 Rodding Eye R63.42 

8110 75mm AC Cascade Saddles R1 374.25 

11006 Licence fees R546 

The municipality experienced cash flow problems due to the Expanded Public Works Programme. 

This project was performed as the Department of Public Works requested each municipality 

to employ casual staff per day for which they would be refunded. The municipality has spent 

R2.9 million since the inception (October 2010), and the Department has only refunded R906 000. 

This resulted in the payment days for payables being extended and not being within the prescribed 

time of 30 days. 

This results in non-compliance with section 65(2)(e) of the Municipal Finance Management Act 

no.56 of 2003. Late payment may result in interest accruing, resulting in a financial loss to the 

Municipality being fruitless and wasteful expenditure. It may result in the termination of certain 

services therefore adversely effecting service delivery. 

90



Leadership 




All invoices should be officially stamped, signed and dated by the responsible official upon receipt 

of the goods and/or service and the invoice. An age analysis of all payables should be compiled on 

a monthly basis in order to identify all outstanding payables timeously. Days in payables should be 

monitored monthly to ensure that payments to service providers/payables are made timeously and 

within the prescribed 30 days. 


Management agreed with the audit finding and root cause and will implement the recommendation; 

however, there was a cash flow problem during May and June 2011 where invoices could not have 

been paid within the 30 days. Furthermore the Auditor General’s account was over R 2 million and 

Baviaans budgeted for R650 000.00. 



91


25. Compliance - Asset management 

Audit finding 

In terms of section s(2)(a) & (c) of the Municipal Finance Management Act, the accounting officer 

of the Municipality has to take all reasonable steps to ensure that the Municipality had and 

maintained: 

(a) a management, accounting and information system that accounted for assets and liabilities; 

(b) a system of internal control of assets and liabilities, including an asset and liabilities register. 

During testing of compliance and fixed assets, it was noted that the fixed asset register was not 

adequately maintained. The detail on the register was not complete or adequate to allow 

identification of the various assets and therefore the completeness and existence of the assets 

could not be determined. This is non-compliance with MFMA s63(2)(a) & (c) since the accounting 

officer has not taken reasonable steps to ensure that the Municipality maintains an information 

system that accounts for assets and an effective system of internal control over assets. 

An accurate and detailed fixed asset register has not been kept by the Municipality for years. 

The service providers then attempted to provide a complete register, however the reference 

numbers used did not correlate to the previous reference numbers used by the Municipality and 

therefore has resulted in confusion. There is also a lack of funds available to put a plan in place to 

identify all assets in the field. 

The non-compliance identified indicates a breakdown in the Internal Control of the Municipality and 

has resulted in a limitation of scope regarding the reporting of the fixed assets in the Annual 




Review and monitor compliance with applicable laws and regulations. 


An accurate and detailed fixed asset register should be maintained. Management should take 

responsibility to lead a team that can track down all fixed assets that belong to the Municipality. 

The assets should then be referenced and recorded on the fixed asset register with sufficient 

detail. The CFO should take responsibility for reviewing the maintenance and reconciliation of the 

fixed asset register to the general ledger on a monthly basis. 





92


26. Compliance - Annual financial statements and annual report. 

Audit finding 

In terms of section 122 (1) of the MFMA: 

1) Every municipality and every municipal entity must for each financial year prepare annual 

financial statements whicha) 

fairly presents the state of affairs of the municipality or entity, its performance against its 

budget, its management of revenue, expenditure, assets and liabilities, its business 

activities, its financial results, and its financial position as at the end of the financial year; 

and 

b) disclose the information required in terms of sections 123, 124 and 125. 

In terms of section 127 (5) of the MFMA: 

5) Immediately after an annual report is tabled in the council in terms of subsection ( 2), the 

accounting officer of the municipality musta) 

in accordance with section 21A of the Municipal Systems Acti) 

make public the annual report; and 

ii) invite the local community to submit representations in connection with the annual 

report; and 

b) submit the annual report to the Auditor-General, the relevant provincial treasury and the 

provincial department responsible for local government in the province. 

In terms of section 129(1) & (3) of the MFMA: 

1) The council of a municipality must consider the annual report of the municipality and of any 

municipal entity under the municipality's sole or shared control, and by no later than two 

months from the date on which the annual report was tabled in the council in terms of section 

127, adopt an oversight report containing the council's comments on the annual report, which 

must include a statement whether the councila) 

has approved the annual report with or without reservations; 

b) has rejected the annual report; or 

c) has referred the annual report back for revision of those components that can be revised. 

3) The accounting officer must in accordance with section 21A of the Municipal Systems Act 

make public an oversight report referred to in subsection (1) within seven days of its adoption. 

Based on the results of the execution phase of the audit we identified various material 

disagreement and limitation misstatements and therefore the Municipality did not comply with 

section 122(1) of the MFMA. 

The following non-compliance issues were noted during our compliance testing relating to the 

annual report: 

The 2009/10 annual report was tabled to council on 31 January 2011.The annual report however 

was only made public by the accounting officer on 14 June 2011. 

The municipal council did not adopt an oversight report containing the council’s comments on the 

annual report within two months from the date on which the annual report was tabled to 

the council. 

93


The 2009/2010 oversight report has not been made public. 

Management does not place enough emphasis on complying with the various laws and regulations 

that are applicable to the municipality. 

This is non-compliance with the MFMA. 





The staff of the Municipality should be trained and up skilled in the MFMA requirements. 

Specific tasks regarding compliance with the relevant legislative requirements should be included 

in the job descriptions of the relevant municipal officials. 

Serious actions should be instituted against the officials who fail to perform the necessary tasks to 

ensure compliance with the MFMA and other applicable legislation. 





94


27. Compliance - Discrepancies noted in approval and submission of the tabled 2011/2012 

adopted budget and budget returns 

Audit finding 

Section 24(3) of the MFMA: 

3) The accounting officer of a municipality must submit the approved annual budget to the 

National Treasury and the relevant provincial treasury. 

Municipal budget and reporting regulation 20(1) (GNR 393 of 17 April 2009): 

(1) The municipal manager must comply with section 24(3) of the MFMA within ten working days 

after the municipal council has approved the annual budget. 

Municipal budget and reporting regulation 18(1) 

Within 10 working days after the municipal council approved the annual budget, the municipal 

manager must make public the approved annual budget and supporting documents and 

accompanying resolutions. 

Based on communication from National Treasury on 11 October 2011, we confirmed that the 

municipality did not submit the tabled and adopted budget and budget returns to the National 

Treasury within 10 working days after the council approved the annual budget. The communication 

also confirmed that the tabled and adopted budgets were not tabled to Council in the format 

prescribed by the National Treasury inclusive of the minimum required information. 

We confirmed that the municipal manager did not make public the approved annual budget and 

supporting documents and accompanying resolutions within 10 days after the Council approved 

the annual budget. 



The council did not have at its disposal the minimum information required to enable it to make an 

informed decision on whether the 2011/12 tabled budget should be approved or not. 

Non-submission of the 2011/12 budget to the National Treasury results in non-compliance with the 

MFMA. 


Leadership 




The staff of the Municipality should be trained and upskilled in the MFMA requirements. 




ensure compliance with the MFMA. 

95






96


28. Compliance - Revenue management 

Audit finding 





Municipal Finance Management Act No 56 of 2003 Section 64 (1) states that the accounting officer 

of a municipality is responsible for the management of the revenue of the municipality. 

In terms of section 64(2) f & h of the MFMA: 

2) The accounting officer must for the purposes of subsection (1) take all reasonable steps to 

ensure: 

(e) The municipality had and maintained a management, accounting and information system 

which: 

i) recognises revenue when it is earned 

ii) accounts for debtors 

iii) accounts for receipts of revenue 

f) that the municipality has and maintains a system of internal control in respect of debtors and 

revenue, as may be prescribed. 

h) that all revenue received by the municipality, including revenue received by any collecting 

agent on its behalf, is reconciled at least on a weekly basis. 

According to the MFMA (64)(3), the accounting officer should immediately inform the National 

Treasury of any payments due by an organ of state to the municipality in respect of municipal tax 

or for municipal services, when such payments were regularly in arrears for periods of more than 

30 days. 

According to the MFMA (64)(4)(a), funds collected by the municipality on behalf of another organ of 

state must be transferred to that organ of state at least on a weekly basis. 

According to the MFMA (64)(2)(g), Interest must be charged per the municipality's policies on 

arrears, except where the council had granted exemptions. 

Based on the results of the audit work performed on revenue and receivables we noted the 

following discrepancies, which indicate non-compliance with the MFMA: 

Revenue and trade and other receivables are materially misstated which indicate that the 

municipality did not have and maintain a management, accounting and information system which 

recognises revenue as it is earned, accounts for debtors and accounts for receipts of revenue. 

Several key controls relating to reconciliation of various classes of transactions within revenue 

were lacking: 

No reconciliation was performed between the valuation roll and the Deeds office information for the 

period ending 30 June 2011. 

No reconciliation was performed between the valuation roll and the valuation of properties per the 

general ledger for the period ending 30 June 2011. 

No reconciliation was performed between Syntell and SAMRAS for the pre paid electricity sales. 

97


No reconciliation was performed between eNatis and SAMRAS DB4 system for the licensing and 

permits income for the period ending 30 June 2011. 

Material misstatements have been noted in revenue and receivables, evidencing a breakdown in 

internal controls over revenue and receivables. 

We confirmed that the section 71 reports that are submitted to the National Treasury on a monthly 

basis include a debtor’s age analysis that specifies all debtors and the days overdue. These 

reports do however not make specific reference to instances where payments due by an organ of 

state to the municipality in respect of municipal tax or for municipal services were regularly in 

arrears for periods of more than 30 days. Upon discussion with the municipal manager, it was 

confirmed that the municipality did not submit any separate reports dealing with overdue accounts 

from organs of state. 

Upon inspection of the payment vouchers it was confirmed that funds received for licensing fees on 

behalf of the Department of Transport was not paid over on a weekly basis. 

Based on the detailed testing performed on interest charged on overdue accounts it was noted that 

interest was calculated at 2% and not prime + 2% as per the municipal policy. 



Management does not have the required knowledge of the laws and regulations relevant to them. 

System inputs are not reviewed to verify that it is accurately loaded 

This is non-compliance with the MFMA requirements. 

Misstatement of interest on overdue debtor accounts 













The Municipality should identify any payments due by organs of state for more than 30 days on a 

monthly basis. Sufficient detail of these overdue payments by organs of state must then be 

included in the monthly section 71 reports submitted to the National Treasury. 

SAMRAS should be contacted to correct the interest rates charged to receivables. 

98






99


29. Compliance - SCM: Procurement process not followed in line with the SCM regulations 

Audit finding 

1. Lack of quotations obtained 

The MFMA sec 112(a) & (b); SCM reg 12(1); SCM reg 19(a) provides for the following range of 

supply chain management processes that municipalities or municipal entities may use; 

a) petty cash purchases, up to a value of R2,000 (VAT included) 

b) written or verbal quotations for procurements of a transaction value over R2,000 up to 

R10,000 (VAT included) 

c) formal written price quotations for procurements of a transaction value over R10,000 up to 

R200,000 (VAT included) 

d) a competitive bidding process for: 

i) procurement above a transaction value of R200,000 (VAT included) 

ii) the procurement of long-term contracts 

2. No contracts entered into 

The Municipal Finance Management Act 56 of 2003, section 116(1) requires that: 

A contract or agreement procured through the supply chain management system of a municipality 

or municipal entity must – 

(a) be in writing; 

(b) stipulate the terms and conditions of the contract or agreement, which must include provisions 

providing for – 

(i) in the case of non- or under-performance; 

(ii) dispute resolution mechanisms to settle disputes between the parties; 

(iii) a periodic review of the contract or agreement once every three years in the case of a 

contract or agreement for longer than three years; 

(iv) and any other matters that may be prescribed; 

The Municipal Finance Management Act 56 of 2003, Section 62(1) (b) requires that the accounting 

officer of a municipality must take all reasonable steps to ensure that full and proper records of the 

financial affairs of the municipality are kept in accordance with any prescribed norms and 

standards. If three quotations were not obtained, the reasons: 

i) were recorded and approved; 

ii) appears reasonable/ justified on the basis that it was impossible to obtain 3 quotations. 

iii) were reported quarterly to the accounting officer or another officer designated by the 

accounting officer; 

iv) were reported to the next meeting of the council/board of directors. 

v) were disclosed in a note to the financial statements. 

vi) are not indicative of fraud. 

100



During the year, the prescribed number of quotes (three) 

expenditure items: 

was not obtained for the following 

Items between R2,000 and R10,000: 

Supplier 

Date 

Amounts 

selected for 

testing 

Number 

of 

quotes 

obtained 

MIL Ferreira 03/08/2010 R3 420.00 1 

Boomtown 25/11/2010 R2 926.05 1 

Tony Westby-Nunn 19/11/2010 R5 000.00 2 

M Maya 21/04/2011 R3 700.00 1 

Piet Viljoen 01/07/2010 - 30/06/2011 R38 416.89 1 

Ta T's Construction 01/07/2010 - 30/06/2011 R14 096.92 1 

Items between R10,000 and R30,000 

Supplier 

Date 

Amounts 

selected for 

testing 

Number 

of 

quotes 

obtained 

Urhwebo e-Transand 04/02/2011 R26 925.80 1 

Vukani Construction 01/07/2010 - 30/06/2011 R20 599.90 1 

3U Building Construction and Supply 07/07/2010 R16 525.00 1 

Suid-Kaap Waardeerders 01/07/2010 R18 673.20 1 

Ta T's Construction 18/02/2011 R19 436.41 1 

Vuku Asset Management 01/07/2010 - 30/06/2011 R124 495.98 1 

We could not obtain sufficient appropriate audit evidence to determine that goods over between 

R30,000 and R200,000 were procured through obtaining three written price quotations for the 

following item: 

Description Amounts selected for testing Total Purchases During 2011 

Rental of photo copier R15 849.62 R15 849.62 


Supplier Date Amounts 

selected for 

testing 

Number of 

quotes 

obtained 

Entsha Henra CC 13/04/2011 R47 885.00 1 

Merlin Gerin Conlog 29/10/2010 R46 345.00 1 

Roland Swarts Consulting 10/09/2010 R120 135.00 1 

Avenier Construction 21/01/2011 R72 000.00 1 

Ta T's Construction 12/01/2011 R85 005.53 2 

Vukani Construction 01/07/2010 - 30/06/2011 R41 329.30 1 

Suid-Kaap Waardeerders 28/03/2011 R115 124.93 1 

Deloitte Consulting 05/08/2010 R60 000.00 1 

101


We could not obtain sufficient appropriate audit evidence to determine that goods between 

R10,000 and R30,000 were procured through obtaining three written price quotations for the 

following suppliers 

Supplier 

Amounts selected for 

testing 

Total Purchases 

During 2011 

Syntell Networks R53 932.03 R53 932.03 

Mayihlume Construction R91 860.00 R92 460.00 

Freddie Mina R111 466.60 R111 466.60 

Additional procedures were performed to ensure that the correct procedures were followed when a 

deviation was encountered. These procedures include: 

Inspecting the relevant documentation to ensure that the reasons for the deviation are 

i) recorded and approved; 

ii) reasonable/justified on the basis that it was impossible to obtain three quotations. 

iii) reported quarterly to the accounting officer or another officer designated by the accounting 

officer; 

iv) reported to the next meeting of the council/board of directors. 

v) disclosed in a note to the financial statements. 

vi) not indicative of fraud. 

None of the above deviations were disclosed in a note to the annual financial statements. 


There are no contracts in existence for the following suppliers as required by the MFMA sec 

116(1): 

Supplier Amounts selected for testing Total Purchases During 2011 

Uhambiso R101 592.20 R1 258 077.40 


Management did not put controls in place to ensure that all purchases are subject to the correct 

procurement procedures and in line with the Supply Chain Management Policy. 

No proper review is done to ensure that all purchases are done in line with the Supply Chain 

Management Policy. 

There is also a lack of staff in the SCM department, therefore circumvention of SCM regulations 

occur on a regular basis. 


The SCM Manager does not take responsibility to ensure that all suppliers that should 

have contracts, does have contracts. 


Bids could be awarded to suppliers which are not necessarily the cheapest. This could lead to 

fruitless and wasteful expenditure. 

102



The Municipality acted in contravention of the MFMA. The expenditure incurred relating to these 

suppliers are deemed to be irregular expenditure. 



Review and monitor compliance with applicable laws and regulations 

Leadership 





Management should ensure that the SCM procurement regulations and guidelines are complied 

with. Evidence of compliance with the procurement regulations should be attached to the payment 

vouchers. The required number of quotations should be obtained for all goods and services 

acquired to ensure that the best price, quality and value for money is obtained and in order to avoid 

incurring irregular expenditure. Senior officials should check that all supporting documentation is 

attached before authorising a payment. Where it is not possible to obtain the required three 

quotations, the reasons for this should be documented, approved by senior management and 

included as part of the payment voucher. Such documented reasons should be made available to 

the auditors on request. Management should provide the auditors with reasons 

why three quotations were not obtained for the abovementioned payments, and include reporting 

the implications (if any) thereof. 

The municipality needs to apply effort to get the best possible outcome from the market to ensure 

that: 

 

 

 

 

Adequate and timely information is provided to all potential suppliers/service providers to 

enable them to quote/bid; 

Service providers have reasonable access to procurement opportunities; 

Discrimination and favouritism are eliminated; 

The municipality deals with service providers fairly. 


Officials performing the supply chain management function should ensure that there are written 

contracts for all tenders awarded, signed by both parties. They should also ensure that a proper 

register is kept for all tenders/quotations received and store all the tenders/quotations in a safe 

place. 




Management response is noted, however, this matter will remain for follow up next audit. These 

findings will however have an impact on the audit opinion expressed. 

103

30. Compliance - SCM: Deviations from prescribed SCM guidances 

Audit finding 


1. Invoice amounts exceeds the amount that was originally quoted by the supplier 

In terms of SCM Regulation 5, no payment made under a quotation should exceed the original 

quoted price unless it is approved by a delegated official. 

2. Suppliers that are not listed on the approved supplier database and no confirmations on 

whether they meet the criteria to transact with the municipality 

In term of the Municipal Supply Chain Management Regulations 16(a), quotations must be 

obtained from at least three different providers, preferably from, but not limited to providers whose 

names appears on the list of accredited prospective providers of the municipality, provided that if 

quotations are obtained from providers who are listed, such providers must meet the listing criteria 

in the supply chain management policy required by Regulation 14 (b) and (c). 

3. Invoices intentionally split into smaller parts to avoid additional procurement procedures 

In terms of SCM regulation 12 (3) supply chain management policy must state- 

(a) that goods or services may not deliberately be split into parts or items of a lesser value merely 

to avoid complying with the requirements of the policy; and 

(b) that when determining transaction values, a requirement for goods or services consisting of 

different parts or items must as far as possible be treated and dealt with as a single 

transaction. 

4. Preference points calculations, for awarding the bid, not calculated correctly 

In terms of SCM regulation 17 (f), the procedure for the procurement of goods through written 

confirmations for items between R30,000 and R200,000 is to consider acceptable offers subject to 

the preference points systems (as set out in the Preferential Procur ement Regulations of 2001), 

and the supplier should be selected who scores the highest on this system. 

In terms of section 14 (a) of the Preferential Procurement Regulations a tenderer should declare 

that all information provided is “true and correct”. In addition, in terms of section 15(1) of these 

regulations an “organ of the state” should, upon detection thereof, act against any person awarded 

a contract on a “fraudulent basis”. 

5. Contract not approved by municipal manager 

Point 4.5.6.1.4 of The Guide for Accounting Officers of Municipalities and Municipal Entities states 

that after approval of a bid, both parties should sign a written contract or, if necessary, a service 

level agreement. Original/legal copies of contracts should be kept in a secure place for judicial 

reference. 

In terms of SCM regulations 5(2) supply chain management policy 5(2) the power to make final 

award may only be approved as follows: 

1. Above R10 million (VAT included) – accounting officer 

2. Above R2 million (VAT inclu ded) but not exceeding R10 million (VAT included) – as per 

delegation but limited to the accounting officer, CFO, senior manager or a bid adjudication 

committee of which CFO or a senior manager is a member 

3. Not exceeding R2 million (VAT included) – as per delegation but limited to the accounting 

officer, CFO, senior manager, manager directly accountable to the CFO or a senior manager 

or a bid adjudication committee 

104


6. Awards granted to prohibited suppliers who have stakeholders that are in service of the state 

In terms of the Supply Chain Management (SCM) Regulations section 44: The SCM policy of a 

municipality/municipal entity must, irrespective of the procurement process followed, state that the 

municipality/municipal entity may not make any awards to a person – 

a) who is in the service of the state; 

b) if that person is not a natural person, of which any director, manager, principal shareholder or 

stakeholder is a person in the service of the state; or 

c) who is an advisor or consultant contracted with the municipality/ municipal entity. 

Section 43 of the Municipality's SCM policy does prohibit awards to any such persons. 

1. Amounts paid exceed quoted amount 

During the testing of compliance with the Supply Chain Management Regulations, it was noted that 

the following payments made to suppliers exceeded the original quote from the suppliers: 


Supplier Date Amount per Amount per Difference 

Quote invoice 

Ideal Valve and Engineering 19/05/2011 R2 098.75 R2 110.16 R11.41 


Supplier Date Amount per Amount per Difference 

Quote Invoice 

Merlin Gerin Conlog 29/10/2010 R44 850.00 R46 345.00 R1 495.00 

J&E Communications 10/11/2010 R43 859.65 R50 590.00 R6 730.35 

2. Supplier not listed on supplier database 

Several of the selected providers could not be found on the client’s supplier database. In such 

cases the client is required to ensure that the provider is not prohibited to transact with the 

municipality by confirming that the supplier is not blacklisted with the National Credit Bureau, has 

never been in jail for fraud, is not prohibited to do business with the public sector as per the 

National Treasury's database and has supplied the municipality with services or goods in the past 

but performed unsatisfactory. The client does, however, not confirm any of these details. The 

expenditure clerk only issue the prospective supplier with an application form and does not follow 

up on whether the supplier completes and submits the form. 


Supplier 

Amount selected for testing 

MIL Ferreira R3 420.00 

Ideal Valve and Engineering R2 098.75 

Boomtown R2 926.05 

Tony Westley Nunn R5 000.00 

F Maya R3 700.00 

F Bakkers R4 500.00 

Bemu Constructing & Supply R2 337.50 

Piet Viljoen R38 416.89 

Ta T's Construction R14 096.92 

105



Supplier 

Amount selected for testing 

Jeans Leisure wear R19 836.00 

Weskus Elektries R15 000.00 

Voltex Electrical R20 604.90 

Urhwebo e-Transand R26 925.80 

Willowmore Hardware R21 150.00 

Piet Viljoen R52 761.23 

Suid Kaap Waardeerders R18 673.20 


Vuku Asset Management R124 495.98 

Blackstone Engineering R10 000.08 


Supplier 

Amounts selected for testing 

Burwana Asphalt R36 805.00 

SWD Verkoeling Verhitting R38 100.00 

Entsha Henra CC R47 885.00 

J&E Communications R50 590.00 

Utility Systems R113 430.00 

Merlin Gerin Conlog R46 345.00 

Human & Snell Constructing and Supply R313 666.50 


Roland Swarts Consulting R109 938.86 

Phillock Signs Industries R100 066.03 

Avenier Construction R72 000.00 

Bemu Construction & Supply R109 200.00 

Roland Swarts Consulting R100 066.03 

Vukani Construction R41 329.30 

3. Invoices intentionally split into smaller parts to avoid procurement regulations 

During the testing of compliance with the Supply Chain Management Regulations, it was noted that 

purchases from the following supplier was deliberately split into smaller parts to avoid complying 

with the SCM policy. 

This conclusion was reached by paying specific attention to the invoice dates and the fact that the 

amounts are just below the R2 000 threshold, which would then lead to additional regulations that 

had to be complied with. 

Supplier Date Applicable Amount 

Willowmore Hardware 13/10/2010 R1 633.96 


Willowmore Hardware 27/10/2010 R651.72 



Total R7 211.62 

106


4. Preference points calculations not done correctly 

The preference points calculations submitted by the bidders were not reviewed by management to 

ensure they are correct. This information is important, as it is a crucial factor in making a decision 

as to which prospective bidder to choose. 

Calculations of the preference points were found to be incorrect for the following bidders: 

Supplier 

Points 

Calculated 

Points 

Recalculated by 

Auditors 

Amounts 

selected for 

testing 

SWD Verkoeling 81.48 81 R38 100.00 

Matrex 81 83.5 

iPatch 80.92 81.4 R69 500.00 

Merlin Gerin Conlog 81 83.43 R44 850.00 

MYNA Mitchelle 22.99 30.99 R43 859.65 

Sicedeni 97.7 93.4 

Bemu 2.52 -0.81 R113 430.00 

Ta T's Construction 82.56 87.56 R88 500.00 


The following supplier’s contract was not approved by the municipal manager: 

Supplier Details Total 

Purchases 

During 2011 

MDL Electrical Steytlerville MV/LV clearance correction and MV 

Ring optimizing project R753 612.95 

6. Awards granted to prohibited suppliers 

Based on the results of the CAATs, the following suppliers were identified as being prohibited to 

transact with the municipality because their stakeholders have an interest in the state. The client 

granted awards to these suppliers during the year: 

Person in service of the state Supplier Amount of awards 

Francis Cathleen Masibambane Food Services R1 980.00 

Mhlangenaba Alfred Mayihlume Construction R92 460.00 

Eunice Euna Masibambane Food Services R1 980.00 

Justin Edmond Swarts & Matolla Construction CC R636.00 

Total R97 056.00 


Management did not put controls in place to ensure that the correct procurement process is 

followed for all purchases. 

The accountant does not review all documents properly before authorising it for payment. 

107



There is a lack of staff in the SCM Department and the one SCM clerk employed by the 

municipality does not have sufficient time to do all the confirmations. 


Management does not monitor and supervise the staff adequately; therefore staff gets away with 

circumventing the SCM policy. 


Management did not exercise due care by reviewing information submitted by bidders to ensure 

that it is accurate and can be relied upon. 


The Municipal Manager did not take responsibility to ensure that after the Adjudication Committee 

has selected a successful tender, the tender gets approved. 


The SCM clerk does not confirm all information required by the SCM policy before the 

municipality enters into agreements with suppliers. 


Payments can be made in excess of agreed amounts thus leading to fruitless and wasteful 

expenditure. 


The municipality can do business with suppliers that are prohibited to do business with the public 

sector which would lead to irregular expenditure due to non-compliance with the SCM Regulations. 


This expenditure is incurred in contravention of the SCM Regulations and is therefore irregular. 


Incorrect business decisions can be made by placing reliance on inaccurate information. This is 

also non compliance with the SCM Regulations as the bidder with the highest points is required to 

be awarded the tender. 


The contract can be deemed void, as the requirements for a valid contract is that both parties must 

agree to the terms and conditions of the contract. Thus expenditure incurred in relation to the 

contract is irregular. 


By not taking precautionary measures, the client is prone to a higher risk of non-compliance which 

would result in irregular expenditure. 

108





Leadership 





The accountant should ensure that the quoted amount is the amount that actually gets invoiced 

and paid over to the supplier by reviewing that the quote agrees to the order and the order agrees 

to the invoice. If the invoice does not agree, they should find out the reason and the appropriate 

delegate should approve the invoice if he/she deems it fit to do so. 


Management should ensure that the Supply Chain Policy is adhered to at all times and that the 

necessary policies are abided by in terms of transacting with suppliers who are not on the supplier 

database. Either the necessary application forms should be completed by the supplier and they 

should be added to the listing, or, the client should go through the necessary procedures to ensure 

that the supplier is not prohibited and therefore can be transacted with in terms of the listing criteria 

on the client's SCM policy. 


Management must develop/document/implement monitoring mechanism to ensure that SCM unit 

officials do not devise irregular methods to deviate from the normal procurement process. 


Management should ensure that they review all bidding documentation to ensure that they are 

complete and in line with the applicable regulations. 

Management should recalculate any information submitted by the bidders and exercise due care to 

ensure that all information submitted by the bidders is accurate and can be relied upon. 


The accounting officer should ensure that all contract documentation is signed by the delegated 

official on behalf of the municipality after approval of bid, as well as ensure contract documentation 

is complete and filed appropriately. 


Management should take the necessary steps to ensure that they obtain all the necessary 

information from prospective service providers before entering into agreements with them. 

109







110


31. Compliance - SCM: Not all the required information submitted in terms of SCM 

regulations 

Audit finding 

1. Preference points calculations not included in bidding documentation 

In terms of SCM regulation 17 (f), the procedure for the procurement of goods through written 

confirmations for items between R30,000 and R200,000 is to consider acceptable offers subject to 

the preference points systems (as set out in the Preferential Procurement Regulations of 2001), 

and the supplier should be selected who scores the highest on this system. 

2. CIDB regulations not fully complied with 

In terms of regulation 25 (1) of the Construction Industry Development Board (CIDB), the client 

should, when posting advertisements to bidders for work falling within the definition of a 

Construction Contract (as per GRAP 11), specify the minimum category that any potential bidder 

should be registered at with the CIDB in order to qualify for evaluation. 

In addition, CIDB regulation 24 the invitation should be advertised on the website. Furthermore 

such advertisements should be done for at least 10 working days before the closing date and 5 

working days before any compulsory site meetings (CIDB SFU 4.2.1.4. & 5). 

3. No disclosure in the Annual Financial Statements for deviations from the requirements of the 

SCM policy 

In terms of SCM regulation 17 (c), where a company has deviated from the requirements of the 

regulations by not obtaining 3 quotations for contracts valued between R30,000 and R200,000 

(SCM regulation 17 (a)), they are required to provide reasons for this deviation and it needs to be 

approved by the CFO or an official delegated by the CFO to do this. 

In addition, disclosure of the deviation needs to be made in the financial statements in terms of 

SCM regulation 36 (2). 

4. No reasons submitted for deviations from procurement process 

In terms of SCM regulation 17 (c), where a company has deviated from the requirements of the 

regulations in terms of obtaining 3 quotations for contracts valued at between R30 000 and 

R200,000 (SCM regulation 17 (a)), they are required to provide reasons for this deviation and it 

needs to be approved by the CFO or an official delegated by the CFO to do this. 

5. Inadequate information submitted by providers for a bid 

In terms of SCM regulation 13 (1) (a) a municipality may not consider a formal written quotation or 

bid unless the provider who submitted that quotation or bid has furnished the municipality with that 

provider's: 

1. (i) full name ; 

2. (ii) identification or company or other registration number; 

3. (iii) tax reference number and VAT registration number, if any; 

4. (iv) authorisation for the municipality to obtain a tax clearance certificate from SARS which 

states that the service provider’s tax matters are in order. 

111


6. Not possible to confirm whether advertisements were posted on the municipality's website for 

7 days 

In terms of Supply Chain Management regulation 18 (a), all requirements in excess of R30 000 

(VAT included) that are to be procured by means of formal written price quotations must be 

advertised for at least seven days on the website and an official notice board of the Municipality 


Preference points calculations were not included for the following providers: 

Supplier for which points were not calculated Payment date Amount 

selected for 

testing 



Roland Swarts Consulting 17/11/2010 R50 590.00 

Human & Snell Contracting & Supply 10/12/2010 R65 000.00 

Yizanyano 12/01/2011 R159 666.50 


2.1 During inspection of the bidding documentation, it was noted that the minimum category at 

which the prospective bidder should be registered at with the CIDB as required by the CIBD 

regulations, was not specified in the advertisements, for the bidding documentation relating to 

the following bids: 


Supplier Details of bid Amount 

selected for 

testing 

3U Building Construction and 

Supply 

Supply and installation of storm water 

pipe R49 906.00 

Entsha Hendra Blading of gravel roads in Willowmore R47 885.00 

Uhambiso Consulting Extension of Manhogs scheme: 

Wilgekloof R49 136.20 

Uhambiso Consulting 

Upgrading of streets and stormwater 

drainage R52 456.00 

Ta T's Construction Various R85 005.53 

Human & Snell Constructing and 

Supply 

Various 

R65 000.00 

2.2 During inspection of the bidding documentation, it was noted that the invitation to tender or for 

calls of expression (in the case of a 2 stage bidding process) was not advertised in the CIDB 

website and the invitation for tenders was not advertised for at least 10 working days before 

the closing date and 5 working days before any compulsory site meetings relating to the 

following bids: 

112



Supplier Details of bid Amount 

selected for 

testing 

3U Building Construction and Supply 

Supply and installation of storm water 

pipe R49 906.00 

Entsha Hendra Blading of gravel roads in Willowmore R47 885.00 

Uhambiso Consulting Extension of Manhogs scheme: 

Wilgekloof R49 136.20 

Uhambiso Consulting 

Upgrading of streets and storm water 

drainage R52 456.00 


Human & Snell Constructing and 

Supply 

Various 

R224 666.50 


SCM policy 

A deviation from the SCM regulations in terms of the number of quotes obtained was not disclosed 

in the financial statements in the case of the following suppliers: 


Supplier Details Amounts 

selected for 

testing 

MIL Ferreira Legal Cost R3 420.00 

Boomtown Media Monitoring R2 926.05 

Tony Westley Nunn Steytlerville R5 000.00 

F Maya Transportation of grass R3 700.00 

Piet Viljoen Various products R38 416.89 

Ta T's Construction Various projects R14 096.92 



selected for 

testing 

Urhwebo e-Transand Extension of Wanhoop scheme R26 925.80 

Vukani Construction Supply and delivery of meters R20 599.90 

3U Building Construction and Supply Rectification of 373 housing units R16 525.00 

Suid-Kaap Waardeerders Valuation of ervens R18 673.20 

Vuku Asset Management Various R124 495.98 



selected for 

testing 

Entsha Henra CC Blading of gravel roads R47 885.00 


Vukani Construction Repairs on toilets at school R41 329.30 

113



The following suppliers only obtained one written price quotation and therefore deviated from the 

regulations. In addition, they have not furnished reasons for such deviation and had these reasons 

authorised by the necessary official: 


Supplier Details Amounts selected for 

testing 

Vukani Construction Supply and delivery of meters R20 599.90 

3U Building Construction and Rectification of 373 housing units R16 525.00 

Supply 


Ta T's Construction 

Steytlerville: Roof rectification and R19 436.41 

wiring 

Vuku Asset Management Various R124 495.98 


Supplier Details Amounts selected for 

testing 

Merlin Gerin Conlog Supply and delivery of meters R46 345.00 

Suid-Kaap Waardeerders Valuation of erven R115 124.93 

Deloitte Consulting Consulting R60 000 

5. Inadequate information submitted by service providers for a bid 

Not all of the information in terms of the requirements of the SCM policy reg 13 (a) has been 

submitted to the municipality by the following providers: 


Supplier Details Amounts Information not submitted 

selected for 

testing 

Jeans Leisure Tourism Awareness Day R19 836.00 Tax Number 

Wear 

Caps 

Weskus Elektries 10mm airdac and pilot R15 000.00 Tax Number 

Voltex Electrical 100w streetlight fitting R20 604.90 Tax number 

Urhwebo e- Extension of Wanhoop R26 925.80 Company registration 

Transand 

scheme 

number, tax reference 

number and VAT number 

Willowmore Black refuse bags R21 150.00 Company registration 

Hardware 

number and tax reference 

Vukani 

Construction 

Renovation of 373 housing 

units 

number 

R20 599.90 Company 

registration 



Piet Viljoen Motors Various R52 761.23 Company registration 



114


Supplier Details Amounts Information not submitted 

selected for 

testing 

3U 

Building Rectification of 373 R16 525.00 Company registration 

Construction and housing units 


Supply 

Suid-Kaap 

Waardeerders 

Ta T's Construction Steytlerville: Roof 

rectification and wiring 

Vuku 

Asset 

Management 

Brackstone 

Engineering 


Valuation of ervens R18 673.20 Company registration 



R19 436.41 Tax Number 

Various R124 495.98 Company registration 



Complete 

pump 

borehole 

R10 000.08 Tax Number 


7 days 

It is not possible to determine whether advertisements were posted on the website of the 

municipality for at least 7 days because the date the advertisement was posted on the website 

cannot be verified. No records are kept by the municipality with regards to advertisements on the 

website. 

The dates the advertisements were posted could not be verified for the following selected 

suppliers: 



selected for 

testing 

SWD Verkoeling 

Supply, delivery and installation of air R38 100.00 

conditioner 

Burwana Asphalt 30kg Coldmix R36 805.00 

3U Building Construction and Supply Supply and installation of storm water R166 546.00 

pipe 

Entsha Henra CC Blading of gravel roads R47 885.00 

Merlin Gerin Conlog Supply and delivery of metres R46 345.00 

J&E Communications 

Supply and installation of two way R50 590.00 

communication 

Utility Systems Supply and delivery of flow metres R113 430.00 

Ta T's Construction Roof rectificationing and wiring R194 944.39 

Roland Swarts Consulting Supply and delivery of paving R120 135.00 

Phillock Signs Industries Tourism Signs R100 066.03 

Avenier Construction Building of boardwalk R72 000.00 

Bemu Constructing & Supply Rental of JCB R109 200.00 


Syntell Networks License Fees R53 932.03 

Deloitte Consulting GRAP compliant fixed asset register R60 000.00 

Mayihlume Construction Rectification of 373 housing units R91 860.00 

Human & Snell Contracting & Supply Various R313 166.50 

Vukani Construction Repairs on toilets at school R41 329.30 

115



A proper review of information submitted for bids are not done by the SCM personnel. 


The SCM clerk did not ensure all advertisements documentation made available to bidders are 

completely up-to-date, and that it has requested all information required by the applicable 

regulations. 


SCM policy 

The monthly reports, which specify all deviations from the procurement process for the month, are 

used to prepare the disclosure to the annual financial statements. The SCM clerk does not include 

all deviations for the month reports. 


The SCM Manager did not ensure that in cases of deviations with the SCM regulations, the proper 

deviation process is followed. 


The client has not exercised due care in ensuring that, before a prospective service provider is 

accepted, all the documentation and information in terms of the applicable legislation has been 

submitted. 


7 days 

Management maintains no visible record or other evidence of when their website advertisements 

are posted. 


By not having all the required bidding documentation the client is not able to evaluate prospective 

providers fairly an in compliance with the applicable regulations. 


The information given to the client is not in compliance with all of the regulations. In addition, the 

prospective bidders are not made entirely aware of all the regulatory requirements which need to 

be complied with relating to the specific job. 


SCM policy 

By management not reviewing cases of deviations, they cannot ensure full compliance with the 

regulations of SCM. 


The client has deviated from the SCM regulations and has not taken the necessary steps in this 

case, and as such this has lead to a case of non-compliance. 


By not doing checks before prospective service provider bids are accepted, issues of noncompliance 

arise. In addition, there is a lack of protection for the municipality in terms of accepting 

clients who may not be fully compliant with applicable legislation or may not be in a sound tax 

position. 

116



7 days 

It is not possible to ensure that the client is fully complying with the applicable regulations in terms 

of advertisements. 







complete and in line with the applicable regulations. 

Management should not consider any bid where the bidder has not submitted all the 

documentation to be preventing instances of non-compliance with regulations. 



complete and in line with the applicable regulations before advertising to prospective bidders. 

3. Disclosures of deviations not made in Annual Financial Statements 

Management needs to review all cases of deviations from the SCM regulations and ensure that in 

such cases, all the necessary steps are taken in order to comply with the applicable regulations. 

4. No reasons for deviations from procurement process 

Management needs to review all cases of deviations from the SCM regulations and ensure that in 

such cases, all the necessary steps are taken in order to comply with the applicable regulations. 

5. Lack of information submitted by winning service provider 

Management should ensure that they follow the applicable checklists of requirements for 

procurement and that these checklists are strictly applied to all prospective bidders. These 

checklists should be approved by a senior official as having been satisfactorily completed. 

Management should ensure that the SCM procurement regulations and guidelines are complied 

with, fully. Evidence of compliance with the procurement regulations should be attached to the 

payment vouchers. The requisite number of quotations should be obtained for all goods and 

services acquired, to ensure that the best price, quantity and value for money is obtained and in 

order to avoid incurring irregular expenditure. Senior officials should check that all supporting 

documentation is attached, before authorising a payment. Where it is not possible to obtain the 

requisite three quotations, the reasons therefore should be documented, approved by senior 

management and included as part of the payment voucher. Such documented reasons should be 

made available to the auditors on request. Management should provide the auditors with reasons 

why three (3) quotations were not obtained for the abovementioned payments, and include 

reporting implications (if any) thereof. 

117


The municipality needs to apply effort to get the best possible outcome from the market to ensure 

that: 

 

 

 

 

Adequate and timely information is provided to all potential suppliers/service providers to 

enable them to quote/bid; 

Service providers have reasonable access to procurement opportunities; 

Discrimination and favouritism are eliminated; and 

The municipality deals with prospective suppliers fairly. 

6. Not possible to identify when advertisements were posted on the website 

Management should maintain a record of when their advertisements are posted or alternatively find 

another method such as keeping print screens of when the advertisements were posted on the 

website so as to make it easy to ensure that all the regulations have been fully complied with. 






118


32. Compliance - Personnel expenditure: Councillors remuneration exceeds upper limits 

Audit finding 

s8(1) of the Remuneration Of Public Office Bearers Act 20 states the upper limits of the total 

annual remuneration package of part time councillors as follows: 

For members of an executive committee and a level 2 municipality the annual remuneration limit 

for a councillor is R225 085 

The Municipality has not given sufficient disclosures regarding the salaries and benefits of the 

councillors.(Section 124 of the MFMA) There has also not been any disclosures of whether these 

salaries are within the upper limits of the framework as stated in section 229 of the Constitution. 

The following Councilors exceeded the upper limit for annual remuneration stipulated in 

Government Gazette no 33867 issued on 10 December 2010 for part time councilors. 

Surname Emp Number Total 

Remuneration 

Package 

Per Gazette Variance Variance per 

month 

Fivaz 1012 R242 457.24 R225 085.00 R17 372.24 R1 447.69 

Hobson 1013 R242 457.24 R225 085.00 R17 372.24 R1 447.69 

Spogter 1014 R242 457.24 R225 085.00 R17 372.24 R1 447.69 

Lapperts 1015 R242 457.24 R225 085.00 R17 372.24 R1 447.69 

As these employees have only been in employment for one month during the current financial year 

we annualized the earnings of these councilors and compared the total remuneration packages to 

the upper limits of the Government Gazette. This results in irregular expenditure amounting to R5 

790.75 as defined by the MFMA. 

The municipality remunerated the councillors on the full-time councillors’ upper limits and not the 

part time councillors’ upper limits. 

This would give rise to irregular expenditure and non-compliance of the Remuneration of Public 

Office Bearers Act. 





Prepares of the Financial Statements should be trained regularly and be notified of any changes 

regarding any Act that states disclosure requirements for the Municipality so as to ensure that 

these preparers always have sufficient knowledge to be compliant with regard to the MFMA and 

Public Office Bearer Act. 

119






120


33. Compliance - Expenditure management 

Audit finding 

In terms of section 65(2) b of the MFMA the accounting officer must for the purpose of subsection 

(1) take all reasonable steps to ensure: 

b) That the municipality has and maintains a management, accounting and information system 

which: 

i) recognises expenditure when it is incurred; 

ii) accounts for creditors of the municipality; and 

iii) accounts for payments made by the municipality. 

In terms of section 62(1) d of the MFMA the accounting officer of a municipality is responsible for 


reasonable steps to ensure: 

d) that unauthorised, irregular or fruitless and wasteful expenditure and other losses are 

prevented. 

In terms of section 32(4) of the MFMA the accounting officer must promptly inform the mayor, the 

MEC for local government in the province and the Auditor-General, in writing, of: 

a) any unauthorised, irregular or fruitless and wasteful expenditure incurred by the municipality; 

b) whether any person is responsible or under investigation for such unauthorised, irregular or 

fruitless and wasteful expenditure; and 

c) the steps that have been taken 

In terms of section 32(2) of the MFMA a municipality must recover unauthorised, irregular or 

fruitless and wasteful expenditure from the person liable for that expenditure unless the 

expenditure – 

a) in the case of unauthorised expenditure is – 

(i) 

(ii) 

authorised in an adjustment budget; or 

certified by the municipal council, after investigation by a council committee, as 

irrecoverable and written off by council; and 

b) in the case of irregular or fruitless and wasteful expenditure, is, after investigation by a council 

committee, certified by the council as irrecoverable and written off by the council. 

Based on the results of the audit work performed on expenditure and payables we noted the 

following discrepancies, which indicate non-compliance with the MFMA: 

Expenditure and trade and other payables are materially misstated which indicate that the 

municipality did not have and maintain a management, accounting and information system which 

recognises expenditure when it occurs, accounts for creditors of the municipality and accounts for 

payments made by the municipality. 

121


The municipality submits a report of expenditure that was not procured through the correct SCM 

process to council on a monthly basis. This report does however not include fruitless and 

wasteful or unauthorised expenditure. Unauthorised expenditure is submitted to council on an 

annually basis to condone. Although no fruitless and wasteful expenditure was disclosed in the 

annual financial statements we indentified fruitless and wasteful expenditure amounting to 

R56 333.90 during our audit. We also identified unauthorised expenditure of R8 718 341.05 and 

irregular expenditure of R17 592 053.95 in addition to the unauthorised expenditure and irregular 

expenditure disclosed in the financial statements. 

There was no evidence of steps taken to prevent a recurrence of such expenditure and based on 

the significance of the additional unauthorised, fruitless and wasteful and irregular expenditure 

identified no such steps are implemented by the municipality. 

We confirmed that the section 32(4) reports were not submitted to the AG or the MEC. 



Management does not have the required knowledge of the laws and regulations relevant to them. 

Non-compliance with the MFMA. This could result in financial loss to the municipality due to the 

procurement process not being followed and corrective measures not implemented to enforce the 

adherence to the supply chain management policy. 

The incurrence of unauthorised expenditure could lead to going concern problems in the end if 

expenditure exceeds revenue on a continuous basis. 










The municipality should implement proper controls to enforce the adherence to the supply chain 

management policy. This should include acting against anyone who deviates from the procurement 

process without valid reasoning in a very serious manner. 





122


34. Compliance - SCM: Deviations from competitive bidding process 

Audit finding 

1. Members serving on the bid evaluation committee also serves on the bid adjudication 

committee 

In terms of SCM reg 29 (4) neither a member of a bid evaluation committee, nor an advisor or 

person assisting the evaluation committee, may be a member of a bid adjudication. 

2. No competitive bidding process was followed 

In terms of SCM Reg 19(a) a supply chain management policy must specify that the goods or 

services above a transaction value of R200,00 (VAT included) and long-term contracts may be 

procured by the municipality or municipal entity only through a competitive bidding process. 

3. Entries on bid register and results of bids not uploaded onto website 

According to SCM Reg 23(c), a supply chain management policy must determine the procedure for 

the handling, opening and recording of bids and must require the accounting officer to record in a 

register all bids received in time; to make the register available for public inspection and to publish 

the entries in the register and the bid results on the website of the municipality or municipal entity 

4. Performance on contracts not monitored on a monthly basis leading to a lack of performance 

measures 

According to MFMA sec 116(2)(b) a contract or agreement procured through the supply chain 

management system of a municipality or municipal entity must – 

(b) stipulate the terms and conditions of the contract or agreement, which must include provisions 

providing for – 

(i) the termination of the contract or agreement in the case of non – or – under performance 

(ii) dispute resolution mechanisms to settle disputes between the parties 

(iii) a periodic review of the contract or agreement once every three years in the case of a contract 

or agreement for longer than three years and 

(iv) any other matters that may be prescribed. 

1. Members of bid evaluation committee also on bid adjudication committee 

Members of the bid evaluation committee are also members of the bid adjudication committee. 

The deficiency was noted in the following contracts: 

Supplier Total purchases during 2011 

Active group Management Services (Pty) Ltd R3 700 148.77 

123



2.1 Goods over R200,000 were not procured through a competitive bidding process for the 

following suppliers: 

Supplier 

Total purchases 

during 2011 

Fintech R204 362.24 

Uhambiso R1 258 077.40 

ABSA R737 539.26 

Bytes System Integration R454 519.88 

KPMG R282 976.33 

Southern Cape Copiers R328 846.64 

Phillip Goets Insurance Brokers R220 751.22 

STASA R517 610.70 

Total R3 487 072.97 

2.2 We could not obtain sufficient appropriate audit evidence to determine that goods over 

R200,000 were not procured through a competitive bidding process for the following suppliers: 

Supplier 

Total purchases during 

2011 

Arts and Crafts – Solly Levy R60 600.00 

M.D.L. Electrical R753 612.95 

RK Sauer Construction R3 161 065.53 

Loyiso Construction R339 599.58 

Real Ridge R263 157.89 

Total R4 578 035.95 

3. Entries on bid register and results not uploaded onto website 

The entries on the bid register and the bid results were not uploaded onto the municipality’s 

website. 

The deficiency was noted in the following contracts: 

Supplier 


2011 

Altimax R481 235.34 

Active Group Management R3 700 148.77 

Total R4 181 384.11 


measures 

Due to there being no monitoring of the contractors, there are also no contract performance 

measures. 

This deficiency was noted in the following contracts: 

Suppliers 


2011 

Altimax R481 235.34 

Active Group Management Services (Pty) Ltd R3 700 148.77 

Total R4 181 384.11 

124



Management does not fully understand what is required of them in terms of the SCM Regulations 


Management has not taken full cognisance of the required procedures that they should be going 

through when procuring goods. This is due to mainly a lack of management supervision over the 

procuring of goods and services. 


No process is in place to ensure that all bid results get added to the Municipality’s website and that 

the results stay on the website for a length of time. 


measures 

The SCM Personnel is not aware that they need to monitor the contractors on a monthly basis as 

they are not fully informed on all the requirements of the SCM policy. 


This is non compliance with SCM Reg 29(4) therefore tenders awarded in these meetings might be 

irregular expenditure 


The client may end up procuring goods in a manner which is not economical. Furthermore this 

leads to a lack of compliance and less stringent control measures to ensure the procurement 

process operates as efficiently, effectively and economically as is possible. 


The public will not know who is the winning bidder and will not be able to comment on the winning 

bidder if they have information regarding this bidder and previous bids which were obtained by the 

bidder. 


measures 

Contractors could be under performing in the contract and not delivering on the requirements of the 

contract and the Municipality will therefore suffer losses. 


Leadership 





125




The Municipality needs to ensure that members of the bid evaluation committee are not on the bid 

adjudication committee. This can be done by comparing the committee lists and for any person 

who appears on both an explanation needs to obtained and the person needs to be removed from 

one of the committees. 


For all bids which there were decisions made to not follow the competitive bid process a proper 

record needs to be maintained with reasoning as to why the process was not followed. 


The Chief Financial Officer needs inspect the website to ensure that all winning bids are listed on 

the website. She also needs to ensure that the winning bids remain on the website for at least a 

two month period. A screen shot of the upload to the Municipal website must be made and placed 

on file. 


measures 

The Accountant Supply Chain Management & Expenditure needs to be sent on training to ensure 

that she is fully aware of all requirements relating to the Supply Chain Management. 






126


35. Compliance - Commitments not correctly disclosed in annual financial statements 

Audit finding 

Paragraph 83: The financial statements shall also disclose for each class of property, plant and 

equipment recognised in the financial statements: 

(c) the amount of contractual commitments for the acquisition of property, plant and equipment, 

and 

Section 122(3) of the MFMA states inter alia that the annual financial statements of the municipality 

must be prepared in accordance with generally recognised accounting practice prescribed in terms 

of section 91(1)(b) of the Public Finance Management Act. 

On testing capital commitments noted on the annual financial statements, the amounts disclosed 

were based on the 2011/2012 budgeted figures rather than amounts agreed on per contractual 

agreements. 

Capital commitments are thus overstated by R1 154 341.78. Please refer to the schedule below: 

Project Number Project Name Amount per AFS Amount per 

contract 

PMU R522 000.00 R418 700.00 

EC 2011 0020 Willowmore Upgrading of R4 214 717.41 R3 851 208.31 

Gravel Streets Phase 3 

EC 2011 0021 S/Ville Upgrading of R4 214 717.41 R3 527 184.74 

Streets & Storm water 

Drainage Phase 3 

Disclosure of commitment amounts in the Annual Financial Statements is based on amounts per 

2011/2012 budget. 

This results in overstatement of commitments in the Annual Financial Statements by 

R1 154 341.78. 


Leadership 




Only capital commitments from which the assets will be capitalised should be included in the 

capital commitments schedule. Capital commitments should be recorded at the contract value, if 

this value is uncertain at the date the Municipality enters into the contract, the schedule should be 

updated with the correct amount as and when it is known. A reconciliation should be performed to 

reconcile the schedule of capital commitments, expenditure per the WIP and commitments 

disclosed in the AFS. 

Also, the capital commitments disclosed in the annual financial statements should be reconciled to 

the Schedule of capital commitments less the expenditure incurred per the schedule and the work 

in progress recorded in the general ledger. Management should perform a review of amounts 

recorded in the general ledger and supporting documentation to ensure the validity, accuracy and 

completeness of the annual financial statements. 

127






128

36. Compliance - Unauthorised expenditure 

Audit finding 


MFMA section 15: A Municipality may, except where otherwise provided in this Act, incur 

expenditure only – 

(a) in terms of an approved budget; and 

(b) within the limits of the amounts appropriated for the different votes in an approved budget 

During our expenditure compliance testing which included the identification of unauthorised 

expenditure, we noted the following discrepancies: 

We compared the adjustment budget amounts allocated to the various expenditure votes in the 

general ledger with the actual approved adjustment budget amounts, which should have been 

allocated to the votes. The total budget allocated to the votes in the general ledger amounted to 

R35 825 146 whilst the approved adjustment budget for all votes amounted to R34 702 946. It is 

therefore evident that the correct budgeted amounts were not captured in the general ledger as 

there is a difference of R1 122 200. 

In addition to this we identified that expenditure to the amount of R4 025 315 was approved as part 

of the adjustment budget but was not allocated to specific votes. This is a further indicator that 

there is no link between the approved adjustment budget and the budget captured in the general 

ledger. 

Taking the above findings into account we identified unauthorised expenditure of R9 363 634 by 

comparing the actual expenditure per the individual votes to the approved adjustment budget 

amounts. 

The municipality has only disclosed unauthorised expenditure to the amount of R3 042 882. 

Therefore the disclosure is incomplete as we have identified additional unauthorised expenditure of 

R6 320 752. 

Management did not allocate the total adjustment to specific vote accounts to enable them to 

identify total unauthorised expenditure. They also did not put any checks and controls in place to 

review the budgeted amounts allocated to the individual votes to ensure that they agree to the 

adjustment budget. 

The municipality has not incurred expenditure only in terms of an approved budget and this results 

in unauthorised expenditure as defined in the MFMA. 





A proper review should be performed after the budgeted amounts have been loaded in the general 

ledger to confirm that the loaded amounts agree to the approved budget. 

As part of the monthly oversight responsibilities, management should compare the actual 

expenditure incurred to date to the budgeted expenditure for the corresponding period to identify 

any unauthorised expenditure and investigate reasons for the unauthorised expenditure. 

129


The accounting officer should take reasonable steps to prevent the reoccurrence of the 

unauthorised expenditure. 

These expenses must be reported to council at the next council meeting and the municipality must 

recover the unauthorised from the person liable for that expenditure. 





130


ANNUAL FINANCIAL STATEMENTS 

37. Annual financial statements - Inaccurate disclosures 

Audit finding 

In terms of Municipal Finance Management Act, section 122, “every municipality must for each 

financial year prepare annual financial statements which fairly presents the state of affairs of the 

municipality or entity, its performance against its budget, its management of revenue, expenditure, 

assets and liabilities, its business activities, its financial results, and its financial position as at the 

end of the financial year.” 

During our testing of the disclosure of finance lease, we noted the following differences: 

1. Finance Leases 

2011 

AFS Disclosure Audited value Variance 

Present value of minimum lease payments due 

Within one year R696 106 R687 709 R8 397 

In second to fifth year R1 162 597 R1 169 730 (R7 133) 

Classification between current and non-current liabilities 

R1 858 703 R1 857 439 R1 264 

Non Current liabilities R1 162 597 R1 169 730 (R7 133) 

Current liabilities R696 106 R687 709 R8 397 

R1 858 703 R1 857 439 R1 264 

Average interest rate 17% 15% 2% 

2010 

Due to the restatement of the prior period balance of finance leases, we had to retest the 

disclosure of finance leases for the prior year. As we tested the population 100% by way of 

recalculation, we were able to assess the accuracy of the prior period disclosure by applying the 

criteria included in GRAP 17: Leases. 

When comparing our independently calculated disclosure amounts to the amounts disclosed in the 

financial statements we noted the following differences: 

AFS Disclosure Audited value Variance 

Minimum lease payments due 


In second to fifth year R1 727 048 R1 699 534 R27 515 

Less: Future Finance 

charges 

Present value of minimum 

lease payments 

(R572 478) (R535 738) (R36 740) 

R1 942 814 R1 942 531 R284 

131


Present value of minimum lease payments due 


In second to fifth year R1 403 043 R1 408 604 (R5 561) 

R1 94 2814 R1 942 530 R284 

Classification between current and non-current liabilities 

Non Current liabilities R1 403 043 R1 408 604 (R5 561) 

Current liabilities R539 771 R533 926 R5 845 

R1 942 814 R1 942 531 R284 

Average interest rate 15% 13% 2% 

2. Disclosure of Key Management remuneration 

During the testing of MFMA disclosure requirements relating to senior managers it was noted that 

the remuneration disclosed in the Annual Financial Statements for the Manager: Corporate Service 

Manager is inaccurate. 

Name Amount Disclosed Total 

Variance 

remuneration 

package 

Corporate Services Manager: M Lotter 

Annual Remuneration R356 249.00 R356 249.00 Nil 

Car Allowance R75 000.00 R75 000.00 Nil 

Other R10 800.00 R61 543.00 R50 743.00 

Total R442 049.00 R492 792.00 R50 743.00 

3. Assets pledged as security 

During our testing of disclosure of Property, Plant and Equipment in the Annual Financial 

Statements we noted that not all finance lease assets have been included in the amount disclosed 

as assets pledged as security. The assets not included relate to finance lease assets that was 

already in existence during 2010 and therefore the disclosure for both 2010 and 2011 is affected. 

Assets pledged as security per 

the Annual Financial Statements 

2011 

2010 

Total value of Finance 

Lease assets included in 

finance lease register 

Variance 

R1 682 831 R3 215 100.74 R1 532 269.98 

R1 175 744 R2 708 013.98 R1 532 269.98 

4. Incorrect disclosure of Personnel cost detail 

Type of Personnel Cost 

Disclosed in 

AFS 

Should be 

Disclosed in 

AFS 

Variance 

Basic R11 382 716 R11 353 865 (R28 851) 

Contribution to UIF, SDL and Medical 

aid 

R768 080 R947 096 

R179 016 

Leave Pay Provision Charged R171 270 Nil (R171 270) 

Travel motor car, accommodation, 

subsistence and 

R182 649 R203 753 R21 104 

132


Management is inadequately trained and does not possess the necessary skill to compile Annual 

Financial Statements that are GRAP compliant 

Incomplete and inaccurate disclosure in the Annual Financial Statements of key items and noncompliance 

with the GRAP Standards. 






1. The disclosure in note 13 to the Annual Financial Statements should be adjusted to reflect 

accurate amounts. 









They will however not adjust the current year's Annual Financial Statements with the 

recommended disclosure. 


Management response is noted, however, this matter will remain for follow up next audit. The lack 

of disclosure might have an effect on the audit opinion expressed. 

133

38. Annual financial statements - Disclosure issues 

Audit finding 


In terms of Municipal Finance Management Act, section 122, “every municipality must for each 

financial year prepare annual financial statements which fairly presents the state of affairs of the 

municipality or entity, its performance against its budget, its management of revenue, expenditure, 


end of the financial year.” 

1. Upon inquiry from E Look (Mayor), it was noted that a councillors (G Hobson) husband had 

carried farming operations on land owned by the Municipality. There is evidence of farming per 

photographic evidence given by mayor; however, there is no contract for this operation and no 

payments are being made. The land is about 6 hectares. This is however not disclosed in the 


2. Note 15 of the financial statements disclose that all consumer deposits amounting to R137 

165 relate to electricity deposits. Upon testing of the consumer deposit balance, it was 

identified that R26 937.72 relate to electricity deposits and R110 227.14 relates to water 

deposits. 

3. Note 14 of the AFS, has a spelling error in the description of the Trade and Other Payables. 

4. In the Statement of Financial Position there is an error relating to Consumer payables from 

exchange transactions. This is clearly a typing mistake, as this should rather read consumer 

receivables from exchange transactions. 

5. Cash flows for consumer deposits have been omitted from the Cash Flow Statement. 

However, the Statement still balances. 

5.1 Cash flows from operating activities do not reflect payments that were made to employees. 

6. Not all the key items have been linked to the relevant disclosure notes. The proceeds from the 

sale of financial assets have not been linked to the relevant note and no such note exists. 

7. The section on new standards and interpretations contain the following errors: 

7.1 There is an incorrect effective date for GRAP 18: Segment Reporting. 

7.2 The effective date for GRAP 23 is incorrect. The date stated is 1 January 2012 whereas the 

correct date is 1 April 2012. 

7.3 The effective date for iGRAP 1 is incorrectly stated at 1 April 2010, whereas the correct date is 

1 April 2009. 

7.4 For the following two GRAP statements (GRAP 25 and GRAP 104) the Municipality has 

provided expected dates for implementation but there is currently no effective date for these 

two standards. The Municipality has not given any support as to why they will have 

implemented these two standards by 2013. 

7.5 A standard effective date for all the iGRAP have been given as 1 April 2011, however iGRAP 7 

has no effective date as of yet. 

7.6 The description of the requirements of the standards and the impact thereof were not 

disclosed. 

7.7 There is a standard statement that the adoption of the standards will not have a significant 

impact. This cannot be the same for each one of the new standards as they all have separate 

impacts on the financial statements. 

8. In disclosure note 3 there is no mention of whether inventory was held at net realisable value 

or not. 

9. In note 4 there is no detailed mention of the credit quality of the other financial assets. 

134


9.1 In the same note, no fair value hierarchy was disclosed. The hierarchy would be is the fair 

value a level 1, 2 or 3 fair value. 

9.2 The fair value information line is irrelevant and not needed for this disclosure. 

10. In note 5 on trade and other receivables form exchange transactions there is no disclosure for 

the credit quality for the different classes of trade receivables and there was also no basis for 

the determination of the credit quality disclosed. There different trade receivables are trade 

debtors, the sundry debtors and the Cacadu debtors. 

10.1 In the disclosure the Municipality states that they deal only with credit worthy consumers. 

However, there are indigent debtors who will never pay the Municipality. 

11. Incorrect classification of the following in the Statement of Financial Position: 

11.1 Trade and other receivables from exchange transactions should read Trade and other 

receivables from non-exchange transactions. 

11.2 VAT receivable from non-exchange transactions should read VAT receivables. 

11.3 Consumer payables from exchange transaction should change to Consumer Trade and other 

Receivables from exchange transactions. 

12. In note 5 the Municipality only states that there were no trade and other receivables that were 

past due. They however do not give any explanation as to how they decide whether a debtor 

would be past due. 

13. In note 5 the Cacadu claims is in credit. This is against GRAP 1, which does not permit the 

offsetting of receivables and payables. 

14. In note 5 fair value hierarchy was not disclosed – i.e. is the fair value a level 1, 2 or 3 fair 

value. 

15. In note 8 the credit quality for cash at bank has not been disclosed. There is only mention 

made that the external credit ratings where used to determine whether the cash was impaired. 

16. In note 10 no mention is made of the assets held under finance leases. This is in contravention 

of GRAP 17. 

17. In note 10 there is a single line item "Other equipment". This is not detailed enough disclosure 

to ensure that all equipment has been disclosed in the financial statements. 

18. There has been an incorrect disclosure of operating software as intangible assets. This is 

inappropriate as only application software is recognised as intangible assets. (Operating 

software is considered part of PPE, due to the fact that it is such an integral part of the PPE). 

19. There is a spelling error in note 14, Trade and other payables from exchange transactions. In 

the second paragraph starting with "The calculation..." accrued has been spelt as accrued. 

20. There is no time value of money taken into account for the bonus provision. This provision is 

rolled forward on a yearly basis and therefore time value of money (i.e. discounting) should be 

done on the figures and the figures cannot classified as a current provision. 

20.1 No assumptions and estimates applied in determining the bonus provision has been 

disclosed in the financial statements. This represents non-compliance with GRAP 19. 

21. Water Services Assets seems to be incorrectly disclosed as it appears as a negative one in 

the 2010 financial year-end. 

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22. VAT receivable has been incorrectly classified as a financial asset. This is because it does not 

represent a contractual right to cash. It is a legal right to cash. Due to the fact that the 

contractual element is missing from this receivable it falls outside of the scope of financial 

instruments.VAT receivable is not a financial asset. 

23. The following items that are not financial liabilities (because there is no contractual obligation) 

have been included in the note: 

23.1 Provisions 

24. The rehabilitation of the landfill site is incorrectly disclosed as a contingent liability. As it is a 

current liability with uncertain timing or amount, it should be disclosed as a provision. 

25. The revenue note contains a line item called “Miscellaneous other revenue”. The purpose and 

nature of this line is not clear. 

26. Spending of the grants per vote is not evident as required by section 122 of the MFMA. 

26.1 Not all the necessary disclosures have been done to explain why all the conditions attached 

to the conditional grants have not yet been met. 

27. In 2010 SETA claims had been set off against the income. This is not allowed per GRAP 1, as 

this does not permit the offsetting of income and expenditure. 

28. In 2010 the long service awards reflected as an income amount. This amount has been clearly 

mispresented as the long service awards cannot be an income item for the Municipality. 

29. The Municipality has not given sufficient disclosures regarding the salaries and benefits of the 

councillors.(Section 124 of the MFMA) There has also not been any disclosures of whether 

these salaries are within the upper limits of the framework as stated in section 229 of the 

Constitution. The following set out how the salaries and benefits of councillors need to be 

disclosed in the annual financial statements: 

Basic Salaries: Councillors R554 908.00 

Public Office Allowance R323 706.96 

Non-Taxable Allowance R185 000.00 

Back pay R30 637.67 

Medical contribution to Mayor R12 168.00 

30. In note 32, IT expenses is shown as an income in the 2010 year. This is in contravention of 

GRAP 1, which does not allow off setting of expenses and income. 

30.1 In note 32 there is shown that movements in water inventory is an income amount. It is not 

clear how this would be possible, as the Municipality does not state that the amounts have 

been revalue or how they got to the income amount. Further, the income amount is not 

allowed to be shown under General expenses, as it is a contravention of GRAP 1, which 

does not allow the offsetting of expenses and income. 

31. There is some unclarity as to the related parties. There is no disclosure whether the 

transactions with the related parties are at arm's length. 

32. In note 38 there is incomplete disclosure of the maturity analysis as not all financial liabilities 

have been added into this analysis. 

32.1 VAT has been incorrectly included in note 38 as it is not a financial instrument. 

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32.2 In note 38 the Municipality states that, under credit risk, there are retail customers. This 

would seem to be incorrect as the Municipality is not in the retail sector and can therefore not 

have retail customers. 

32.3 The Municipality has not adopted GRAP 104 and therefore they have incomplete disclosures 

regarding the sensitivity analysis that will be needed in terms of IFRS 7 as the Municipality 

still has to report in terms of IAS 39, IAS 32 and IFRS 7. 

33 In note 43 the Municipality has only disclosed the amounts for the irregular expenditure. No 

further disclosures as to the reasons for the irregular expenditure and also the steps taken, 

including disciplinary action against anyone who was involved in the irregular expenditure. 

34. Incorrect disclosures of the budgets versus the actuals. These should not be presented in the 

annexures as is currently done but should be presented within the financial statements 

themselves. 

35. The basis for the presentation of the financial statements is not complete, as it does not state 

that the financial statements have been prepared in accordance with the MFMA. 

36. The inclusions of the considerations for useful lives in significant judgements are superfluous 

as the Municipality has applied Directive 4 and as a result, it did not depreciate any of its 

assets. 

36.1 The considerations for the impairment are also not needed due to the Directive 4 application. 

37. The accounting policy note on Property, Plant and Equipment is not clear enough to show the 

distinction between exchange transactions with economic substance and transactions without 

economic substance. 

37.1 There is incorrect mention made of servitudes under this policy note. Servitudes are 

intangible assets and can therefore not be mentioned under this note. 

37.2 It is not clear whether the transitional provisions only apply to newly bought assets or also to 

assets, which have been recognised in previous financial years. 

38. The accounting policy note on financial Instruments contains the following errors: 

38.1 The policy does not address whether the entity uses trade date or settlement date 

accounting. 

38.2 There is not enough clarity on the fact that equity investments are carried at fair value. 

38.3 The policy also states that where an asset is transferred and the transfer does not qualify for 

derecognition, the continuing involvement with the asset takes the form of guarantee. This 

may not be within the limitations set on Municipalities by section 50 of the MFMA for the 

guarantees that a Municipality may issue. 

38.4 The section on subsequent measurement states “Gains and losses arising from changes in 

fair value are recognised in equity...”. There is not enough clarity as to what class of financial 

instruments this statement relates to. There is also reference made to equity in the note, 

which is not appropriate. 

39. The following issues are present in the accounting policy note for impairment of non-cash 

generating assets: 

39.1 There is unnecessary extensive disclosure on GRAP 21.14. The Municipality concludes that 

the disclosure in terms of this GRAP standard is not necessary after a long discussion. 

39.2 There is extensive discussion in the note on the difference between cash generating and noncash 

generating units and the criteria needed to determine this. In the end, there is a 

conclusion that the disclosure of these is not needed. 

39.3 There is no clarity on which one of the values in use approaches that are listed by the 

Municipality is implemented by them. 

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40. There are the following issues within the Employee Benefits section of the accounting policy 

note: 

40.1 There is no mention made of the measurement of short-term employment benefits. 

40.2 Post retirement obligations are not clearly disclosed as to whether there are also defined 

benefit plans and not only the defined contribution plans that are mentioned. 

40.2.1 There has been mention made actuarial valuations but there is no obligation reflected in 

the statement of financial position. It is not clear why there will be disclosure on the 

measurement if the obligation is not funded by the municipality. 

41. The policy note on the revenue from exchange transactions is not taking into account iGRAP 1 

as the Municipality states that revenue is recognised when it is probable that economic 

benefits or service potential will flow to the entity. 

42. The policy note heading for unauthorised expenditure, fruitless, wasteful and irregular 

expenditure is incorrect as there is a separate accounting policy have been included for 

irregular expenditure (1.18) and fruitless and wasteful expenditure (1.17). 

43. The following three policy notes do not address how the expenses are measured. The notes 

are: 1.16 (unauthorised expenditure), 1.17(fruitless and wasteful expenditure) and 

1.18(irregular expenditure). This presents non-compliance with GRAP 1 which requires 

disclosure of the measurement basis. 

44. The policy note on the use of estimates does not contain enough detail regarding what the 

estimates are exactly, the impact of these estimates on the financial statements and/or the 

areas affected by the estimates. Therefore, the policy does not comply with GRAP 1. 

45. There is a duplication of information under policy note 1.20 Presentation currency. The 

information contained in this note has already been addressed under 1. Basis for presentation. 

46. There is no information in note 1.22 Related parties as to whether there transactions with 

related parties are conducted at an arm's length price. The note does state that if the 

transactions were arms' length but not exactly whether all transactions with related parties are 

arms length. This is in contravention of GRAP 1 which requires that the measurement basis 

needs to be disclosed. 

47. The budget information disclosed in appendix C as well as in as in note 1.23 Budget 

information is inappropriate. To be able to compare the figures both actual and budgeted 

figures need to be on the same basis. In this case, it would be the cash basis as the 

Municipality is on a cash basis and the budget gets prepared on this basis. The appendix C 

shows noncash items which would not be present if they were doing the comparison on a 

purely cash basis. 

47.1 The policy note does not clearly state what was used as a basis to draft the budget. 

48. Note 6 on VAT receivable does not clearly state how VAT is treated, there is no clear 

indication on how input VAT and output VAT is treated. Detail testing on VAT also indicated 

that no VAT has been declared on revenue that relates to debtors. 

49. There is a line at the bottom of the Statement of Changes in Net Assets, which says "note(s)". 

This is a redundant line as no notes are attached to the bottom of the statement. 

50. The policy note 1.13 Revenue from non-exchange transactions - Government grants is 

currently reading too restrictively. 

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51. The policy note 1.14 Borrowing costs are outdated. This is in contravention of GRAP 5, which 

does not permit the expensing of borrowing costs. 

52. The policy note 1.18 Irregular expenditure is incorrectly referring to the PFMA practice note no 

4. This note is not specifically for Municipalities. 

53. There is a missing accounting policy note for the following: transfer of functions and there is 

also no disclosure in the financial statements as to how the transfer of functions has been 

accounted for and if it was accounted for. GRAP 3 read with Directive 5 requires that an entity 

develop an accounting policy based on standards issued but not yet effective where there is 

no standard of GRAP that is both issued and effective at the date of a transaction’s 

occurrence. As such, the lack of a policy to address the transfer of functions represents noncompliance 

with GRAP 3. 

53.1 There is no further disclosure in the financial statements of this transfer of functions 

transactions, which were mentioned in the Property, Plant and Equipment accounting policy 

note. This is in contravention of GRAP 1, which requires a minimum amount of disclosure to 

be done and where it is necessary for the users' understanding, then additional disclosures 

need to be done. As the transfer of functions is a material transaction, more disclosure on 

this would be needed. 

54. The cash and cash equivalent disclosure is confusing as the Municipality states that there are 

no overdraft facility but then says that the bank overdraft as shown is due to reconciling items. 

55 There is some unclarity as to the Investment Property additions for the 2010 year. The amount 

sh.own is R7,000.00 and investment property usually relates to land and buildings and it is 

unclear what type of land and buildings could be bought for R7,000.00. It seems that the 

investment property cost may not be correctly capitalised. 

55.1 The transitional provision disclosure for investment property is not clear as to which balances 

they have applied the provisions to. There is only a carrying value of R10,155 given and it is 

stated that this is the amount which is under the transitional provisions. 

56. The transitional provisions found in the intangible assets note do not clearly state to which 

assets they apply. 

57. The valuation of the long service awards is not done with the help of actuaries. In terms of IAS 

19 these long-term benefits should in essence be treated as defined benefit plans – thus 

liabilities measured by actuaries should be raised. It appears that this has not been done. 

58. The classification of the landfill site as a contingent liability is not correct. In addition, there is 

no need to disclose the name of the consultant who did the valuations. 

59. Licences and permits have incorrectly been disclosed as revenue from exchange transactions 

and not as revenue from non-exchange transactions. 

60. The Municipality has not disclosed whether interest has been charged on overdue debtor 

accounts. This represents potential non-compliance with the MFMA. 

61. The disclosure of irregular expenditure is insufficient. 

62. The prior year error note per the AFS for Finance Cost is disclosed in Note 37 as R77 951,00, 

however the actual prior year error tested is R71 077,00. Thus, the disclosure error is 

R6 874,00 overstated. 

63. In note 27 the heading must change to Interest revenue instead of Investment revenue. The 

comparative figures do not agree to the Statement of Financial Performance comparative 

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figures, bank interest should be R964 944 and interest charged on trade and other receivables 

should be R344 608. The current year figures for Interest charged on trade and other 

receivables should agree to the Statement of Financial Performance, therefore must change to 

R350 502. 

64. The cash and cash equivalents have been inadequately disclosed as Facilities were omitted. 

65. Rates debtors should move to trade and other receivables from non-exchange transaction. 

65.1 The provision for doubtful debt should be split between the different services to show the 

net balance for each service. 

65.2 In the reconciliation of debt impairment provision, the bad debts written off should be 

included. 

65.3 In the total age analysis of the current year, there is a casting error of R55. 

66. The Municipality did not disclose any information on the progress made towards measuring 

assets or liabilities in accordance with the requirements of Standards of GRAP and 

recognising major classes of assets and liabilities that have not been recognised in full as 

required by directive 4. 

67. The opening balance for 2011 on the Statement of Changes in Net Assets in the Annual 

Financial Statements reflects an amount of R 23 452 374 , however the prior year Annual 

Financial Statements reflects a closing balance for 2010 of R 22 167 642. For the difference of 

R1 284 728 an amount of R114 084 could not be substantiated with valid supporting 

documentation. 

68. Just splitting out the total for the mayor and the rest of the council appears insufficient. 

Although they do not need to disclose each councillor separately, they need to at least 

disclose the different component of the remuneration separately. The remuneration received 

by Councillors from the Municipality was not disclosed per class of remuneration in the Annual 


69. For disclosure regarding Trade and Other Payables there should be disclosed the amount that 

is due and Payable within one year. This is disclosed at R83 94 861 but there should be 

disclosed the entire amount of R8 678 022 as this entire amount will be due. 

70. Other income must be split to show the material amounts in other income separately. EPWP 

wages income is income from a non-exchange transaction and should be disclosed as such. 

71. The cash and cash equivalents have been inadequately disclosed as Facilities were omitted. 

The consultants who compiled the AFS were not informed about this transaction. The CFO does 

not take responsibility for the work performed by the service providers to ensure that the Annual 

Financial Statements are valid accurate and complete. 

Incomplete and inaccurate disclosure in the Annual Financial Statements of key items and noncompliance 

with the GRAP Standards. 





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1. The Financial Statements should be adjusted to disclose the facts. 

2. The disclosure in note 15 should be adjusted to disclose consumer deposits for water and 

electricity separately 

3. The disclosure in note 14 should be checked for spelling before printing and submitting. 

4. The Municipality should correct the typing error in order that the Consumer Payables read 

Consumer Receivables. 

5. Detailed explanations should be given as to why the Cash flow still balances or the errors 

need to be fixed by the Municipality. 

5.1 The payments that were made to employees need to be added under the cash flows from 

operating activities. 

6. A disclosure note for the proceeds from the sale of financial assets should be included in the 


7. 

7.1 The effective date for GRAP 18: Segment Reporting should be removed as no effective date 

exists as of yet. 

7.2 The effective date for GRAP 23 should be changed to 1 April 2012. 

7.3 The effective date for iGRAP 1 should be changed to 1 April 2009. 

7.4 The Municipality should give supporting reasons as to why they believe that GRAP 25 and 

GRAP 104 will be implemented by 2013. 

7.5 The effective date for iGRAP 7 needs to be removed. 

7.6 The note needs to be updated to include the following for each of the new standards and 

interpretations: 

a) What are the requirements of these standards. 

b) What the impact of adopting these standards will be. 

c) How the impact has been considered by the Municipality. 

7.7 More thought needs to be given to the impact of each standard and interpretation. 

8. The disclosure in note 3 should be updated to include whether inventory was held at net 

realisable value or not. 

9. The Municipality should disclose whether the other financial assets' credit quality is high, 

medium, low as well as the credit rating. 

9.1 The Municipality should disclose the fair value hierarchy for each of the other financial 

assets. 

9.2 The note should be updated to no longer include the line item fair value information. 

10. The disclosure in note 5 should be updated to show the credit quality for the trade debtors, 

the sundry debtors and the Cacadu claims. 

10.1 The disclosure under note 5 should detail the amount of indigent debtors and the Municipality 

should also state that there are indigent debtors in the current financial year. 

11. 

11.1 The disclosure in the Statement of Financial Position should be changed to read Trade and 

other receivables from non-exchange transactions. 

11.2 The disclosure in the Statement of Financial Position should be changed to read VAT 

receivables. 

11.3 Consumer payables from exchange transaction should change to Consumer Trade and other 

Receivables from exchange transactions. 

12. The disclosure in note 5 should be extended to include a detailed explanation as to how they 

determine whether a debtor is past due. 

13. The disclosure of Cacadu claims should be changed to be reflected in the Trade Payables 

section of the Statement of Financial Position. 

14. The disclosure in note 5 should include the fair value hierarchy for each of the Trade 

Receivables. 

15. The disclosure in note 8 should be updated to include more detail on the credit ratings. 

16 Leases. 

17. The disclosure in 11 should be removed and classified under PPE. 

19. The spelling error in note 14 should be corrected. 

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20. For the bonus provision there needs to be a split performed between the current and longterm 

portions of this amount and also the amount needs to be discounted at the effective 

interest rate to a present value at the financial year-end. 

20.1 All assumptions and estimates applied in the determination of the bonus provision should be 

fully disclosed in the financial statements. 

21. Water Services Assets should be corrected or if the negative one is a correct amount then 

there needs to be fully disclosed in note 16 as to the reason for the negative one. 

22 AT receivable should be removed from financial assets and just disclosed as a current asset 

in the financial statements. 

23. Provisions should be removed from the note and put in the separate a loan. 

24. The rehabilitation of the landfill site should be disclosed as a provision and all disclosure 

requirements relating to provisions should be adhered to. 

25. This line item should be disseminated into its components so that its nature becomes 

evident. 

26. The grants per vote must be clearly evident in the note to the Grant Expenditure. 

26.1 The Municipality must make all the disclosures are required by section 122 of the MFMA. 

27. The Municipality must remove the SETA claim which appears as a negative under income in 

the 2010 year and show it as an expense in that year as that is what it is. 

28. the Municipality should revisit the 2010 long service award disclosure as well as the 

calculations and show the correct expenditure amount or provide sufficient explanations as to 

why the amount is shown as an income in the financial statements. 

29. The disclosure of note 28 needs to be updated to show whether the salaries fall within the 

upper limits of the framework per section 229 of the Constitution and also further breakdown 

must be given regarding the item called "other" under the individual councillors' remuneration 

disclosures. 

30. The disclosure should be updated to show the IT expenses as an income item in the 2010 

year. 

30.1 Further disclosures need to be made regarding the movements in water inventory to clear up 

how the Municipality would have gotten to an income amount. If a revaluation was done then 

all assumptions must be stated as well. The income amount must be moved into an income 

account and no longer disclosed under General Expenses. 

31. The disclosure in note 36 needs to be updated to include whether all transactions with 

related parties are at arm's length. If these transactions are not at arm's length, the 

Municipality needs to provide adequate reasons and documentation towards this regard. 

32. The disclosure in note 38 must be updated to include all financial liabilities that were in place 

in the current financial year. 

32.1 VAT needs to be removed from note 38. 

32.2 The reference to retail sector customers must be removed from the note 38. 

32.3 The disclosure in note 38 must be expanded to include the sensitivity analysis as required by 

IFRS 7. 

33. The disclosure in note 43 needs to be updated to include a full description of the reasons for 

the irregular expenditure as well as all action and steps taken against anyone who was 

responsible for the irregular expenditure. 

34. The disclosure of the budgets versus actual needs to be moved into the financial statements 

and out of the annexure. 

35. The basis for the presentation of the financial statements should be updated to include that 

the financial statements have been compiled in accordance with the MFMA. 

36. The note regarding significant judgements should be updated to no longer include mention of 

thee considerations for useful lives as these can lead to confusion. 

36.1 The note should further be updated to no longer include the mention of the considerations of 

impairment. 

37. The accounting policy note on Property, Plant and Equipment should be updated to clarify 

the distinction. 

37.1 The servitudes need to be removed from this accounting policy note and be added to the 

intangible assets accounting policy note. 

37.2 The transitional provision paragraph needs to be updated to clearly state all the balances 

which get affected by these provisions. 

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38. 

38.1 The note needs to be updated to clearly state whether the Municipality uses the trade date or 

settlement date accounting for their financial instruments, 

38.2 The Municipality should include more clarity on the fact that the equity investments are 

measured at fair value. 

38.3 The Municipality needs to ensure that all guarantees are within the limitations set by section 

50 of the MFMA and they should also include a paragraph stating this fact. 

38.4 The statement needs to be updated to state that it relates to available for sale financial 

assets. Furthermore, the reference to equity should be replaced with net assets and residual 

interest as appropriate. 

39. 

39.1 The unnecessary disclosure regarding GRAP 21.14 needs to be removed from the 

accounting policy note. 

39.2 The reference to the criteria for the determination of the cash-generating unit and the noncash 

generating units need to be removed completely from the note as this disclosure does 

not belong in the note. 

39.3 More detail must be added to the section on the value in use and there needs to be stated 

which one of the listed approaches is used by the Municipality. 

40. 

40.1 The disclosure needs to be updated to include the measurement of the short-term 

employment benefits. 

40.2 More disclosure needs to be included in the note regarding whether there are any defined 

benefit plans. 

40.2.1 The disclosure on the actuarial valuations should be revised and if appropriate disclosure 

needs to be made with regards to the obligation within the statement of financial position. 

41. The Municipality needs to update this note to be in line with iGRAP 1. 

42. The policy heading needs to be changed to show that the policy only relates to unauthorised 

expenditure. 

43. The three notes 1.16 (unauthorised expenditure), 1.17(fruitless and wasteful expenditure) 

and 1.18(irregular expenditure) need to be updated to include a paragraph on how these 

expenses are measured. 

44. The policy note 1.19 needs to be updated to include enough detail on the exact estimates 

that have been used by the Municipality and the impact of the estimates on the financial 

statements and also any areas of the financial statements that have been affected by the 

estimates which the Municipality have used. 

45. The note 1.20 Presentation currency should be removed as to prevent unnecessary 

duplication of information presented in the financial statements. 

46. The note 1.22 Related parties should be updated to include exactly whether these 

transactions have occurred at an arms' length cost. 

47. The Appendix C needs to be updated to show the cash basis for both the actual and the 

budget figures. Then a reconciliation between the two figures needs to be redone to be 

based on the cash basis. 

47.1 The policy note needs to be updated to show whether the Municipality applied GRAP 24 or 

whether they applied the National Treasury guidance. 

48. A detail paragraph should be included on how VAT input and VAT output is processed and 

the treatment on the compilation of the VAT 201's. 

49. The line at the bottom of the Statement of Changes in Net Assets needs to be removed. 

50. The policy note needs to be amended to state that in accordance with GRAP 23 the 

recognition of the grants is to the extent of which the performance obligation in terms of the 

grant agreement and not solely with reference to the restrictions. 

51. The note needs to be updated to state that borrowing costs should be capitalised to the 

extent that it is directly attributable to the construction of a qualifying asset. 

52. The note needs to be corrected to show the relevant paragraph out of the MFMA which has 

to do with irregular expenditure. 

53. The accounting policy note needs to be added to the financial statements as in accordance 

with GRAP 3 read with Directive 5. The Municipality needs to develop an accounting policy 

143


based on standards issued but not yet effective where there is no standard of GRAP that is 

both issued and effective at the date of a transaction’s occurrence. 

53.1 The municipality should update the financial statements to include additional disclosures on 

the transfer of functions. 

54. The cash and cash equivalents disclosure needs to be amended to rather state the following: 

The municipality does not have an overdraft facility at either ABSA Bank or Standard Bank. 

The negative bank balance reflected is due to reconciling items in the bank reconciliation. 

55. The additions need to be clearly shown at to what it relates to and also the relevant amount 

and any explanations regarding the low cost of the asset needs to be disclosed. 

55.1 The transitional provisions must be more clearly stated to ensure that the users know 

precisely which year's amounts are under the provisions and exactly whether they apply the 

provisions for assets going forward (new assets) or also to assets that have been in the 

previous financial years. 

56. The transitional provision paragraph needs to be updated to clearly state all the balances 

which get affected by these provisions. This would be either the carried forward balances 

from previous years or any new additions in the current year. 

57. The Municipality should obtain actuarial valuations for the long service awards and if they 

have already done so and these awards are already calculated by the actuaries then a 

paragraph to this extent needs to be added into the Provisions note. 

58. The landfill site should be disclosed under the transitional provisions of the Contingent 

Liability note and also the reference to the consultant who did the valuations needs to be 

removed. 

59. The licences and permits must be removed from the revenue form exchange transactions 

section and must be disclosed under revenue from non-exchange transactions. 

60. The Municipality should fully disclose any interest that has been charged on overdue debtor 

accounts. 

61. The following information should also be disclosed in relation to the irregular expenditure: 

a) What lead to the irregular expenditure 

b) Is the irregular expenditure recoverable 

c) What steps towards recovery have been taken 

d) What disciplinary steps have been taken with regards to the irregular expenditure 

e) What criminal proceedings have been instituted 

f) Has any portion of the irregular expenditure been recovered 

g) What portion of the irregular expenditure has been written off 

62. The Municipality must update the financial statements to ensure that the disclosure in Note 

37 includes the correct amount for the finance cost prior year error adjusted for. 

63. The comparative figures in Note 27 need to be adjusted to agree to the Statement of 

Financial Performance, so Bank should be R964 944 and Interest charged on trade and 

other receivables should be R344 608. The current year figures for Interest charged on trade 

and other receivables must change to R350 502 to agree to the Statement of Financial 

Performance. 

64. The Municipality should disclose Facilities available to it. 

65. Rates debtors should move to trade and other receivables from non-exchange transaction. 

65.1 The provision for doubtful debt should be split between the different services to show the net 

balance for each service. 

65.2 In the reconciliation of debt impairment provision, the bad debts written off should be 

included. 

65.3 In the total age analysis of the current year, there is a casting error of R55. 

66. The municipality should disclose information on the progress made by the entity towards 

measuring assets and liabilities in terms of the requirements of Standards of GRAP. 

67. Municipality should disclose only correct information for which they can explain and not 

amounts that they do not know where it comes from. 

68. Prepares of the Financial Statements should be trained regularly and be notified of any 

changes regarding any Act that states disclosure requirements for the Municipality so as to 

ensure that these preparers always have sufficient knowledge to be compliant with regard to 

the MFMA.. 

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69. Prepares of the Financial Statements should be trained regularly and be notified of any 

changes regarding any Act that states disclosure requirements for the Municipality so as to 

ensure that these preparers always have sufficient knowledge to be compliant with regard to 

the MFMA.. 

70. Other income must be split to show the material amounts in other income separately. EPWP 

wages income is income from a non-exchange transaction and should be disclosed as such. 

71. The Municipality should disclose Facilities available to it. 



They will however not adjust the current year's annual financial statements with the recommended 

disclosure. 




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39. Annual financial statements - Annual financial statements incorrectly prepared on 

going concern assumption 

Audit finding 

In terms of GRAP 1 Management should make an assessment of an entity’s ability to continue as 

a going concern when preparing the financial statements. Financial statements should be prepared 

on a going concern basis, unless there is an intention to liquidate the entity. 

Where there are uncertainties regarding the entity’s ability to continue as a going concern, these 

uncertainties should be disclosed. 

Where financial statements are not prepared on a going concern basis, it should be disclosed. 

After performing an assessment on the ability of the municipality to continue as a going concern, it 

was founded that the municipality has material going concern issues and thus it is inappropriate to 

prepare the annual financial statements on a going concern basis due to the following reasons. 

 

 

 

 

 

Net current liability position 

Creditors days exceeding 30 days 

Budgets do not take into account the opening balance errors/uncertainties and there was 

significant errors/limitations in current year AFS and thus not known if reliance can be 

placed on the cash flow forecasts/budget 

No assurance that municipality can operate and settle short term debts 

No assurance from national treasury to mitigate liquidity issues. 

This is largely as a result of cash flow problems experienced during the year relating to the 

municipality's agreement with the department of public works and the poor record and accounts 

keeping by the municipality which resulted in large errors having to be corrected from prior years 

which influences the budgets already drawn up. 

This would mean that the financial statements is misstated materially as a whole and that the users 

would be misguided into thinking that it might be likely to function as going concern in the future. 


Leadership 




Management should perform an annual assessment of its ability to continue as a going concern 

before preparing its annual financial statements to ensure it is done on the correct basis and 

method. 





146


IMMOVABLE ASSETS 

40. Property, plant and equipment: No land and buildings recorded in the annual financial 

statements 

Audit finding 






A deed search was performed on all the various naming conventions, which fall within the 

Baviaans district, and the following results were obtained: 

MUN GEBIED VAN WILLOWMORE - 20 properties 

MUN STEYTLERVILLE - 13 properties 

STEYTLERVILLE MUSEUM - 1 property 

MUN BAVIAANS - In excess of 100 properties identified - due to limitations on the title deed search 

engine, the detail of the individual properties for this naming convention could not been obtained. 

There was however, no Land and buildings recorded in the Annual Financial Statements 

It is therefore clear that the Property, Plant and Equipment balance is not complete and thus a 

scope limitation has been imposed. We will include an audit qualification paragraph on the 

completeness of Property, Plant and Equipment in the audit report. 

The Municipality did not interpret the transitional provisions included in Directive 4 correctly. 

Directive 4 only allows relief in terms of valuation but the Municipality did also not ensure that the 

Investment Properties recorded in the Annual Financial Statements exists and is complete. 

Property, Plant and Equipment are materially misstated in the Annual Financial Statements. 


Leadership 




The Municipality should indentify all land registered in the name of the Municipality from 

the valuation roll from all areas of the municipality and ensure that this land is listed in the asset 

register. 





These limitations will have an effect on the audit opinion expressed. 

147


INVESTMENT PROPERTY 

41. Investment properties - Existence and completeness of the investment property register 

Audit finding 






During the audit of Investment Properties the following issues were noted: 

Existence - based on the information in the Investment Property Register we were unable to 

identify which ERF numbers make up the Investment Property balance of R10 155 at year-end. 

Detail of the Investment Property register are as follows: 

Opening balance at 1 July 2009 

ERF 

Amount 

3324 1,000.00 

3325 757.61 

3326 947.43 

3277 3,500.00 

3278 3,500.00 

3279 3,500.00 

The following additions occurred during 2009 and 2010: 

ERF 

Amount 

3334 3,500.00 

3335 3,500.00 

The following ERF's were disposed of during 2009 and 2010 that were not included in the asset 

register: 

ERF 

Amount 

2111 800.00 

2112 1,100.00 

2113 1,000.00 

2114 1,000.00 

2115 1,200.00 

1180 1,400.00 

1183 1,400.00 

223 750.00 

1670 1,400.00 

Based on this detail the balance of R10 155 could not be allocated to any specific properties. 

148


The additions for 2009 and 2010 could not be traced to the deed search results or the municipal 

valuation roll. Therefore we were unable to satisfy ourselves regarding the existence of the 

Investment Properties balance recorded in the Annual Financial Statements. The balance of R10 

155 was included on the Summary of uncorrected misstatements. 

Completeness - A deed search was performed on all the various naming conventions which fall 

within the Baviaans district and the following results were obtained: 

MUN GEBIED VAN WILLOWMORE - 20 properties 

MUN STEYTLERVILLE - 13 properties 

STEYTLERVILLE MUSEUM - 1 property 

MUN BAVIAANS - In excess of 100 properties identified - due to limitations on the title deed search 

engine, the detail of the individual properties for this naming convention could not been obtained. 

No properties on the deed search results could be traced to the Investment Property register. For 

example: 

Town Title Name Erf Number 

WILLOWMORE MUN GEBIED VAN WILLOWMORE 1429 















VAN DER WESTHUIZENKRAAL MUN GEBIED VAN WILLOWMORE 131 





STEYTLERVILLE STEYTLERVILLE MUSEUM 9 

STEYTLERVILLE MUN STEYTLERVILLE 208 













As the deed search results for the naming convention MUN BAVIAANS was unable to list the 

details of the individual properties these properties were not included in the list above. 

149


Therefore we were unable to satisfy ourselves regarding the completeness of the Investment 

Properties balance recorded in the Annual Financial Statements. An audit qualification paragraph 

on the completeness of Investment Properties will be in included on the audit report. 

The Municipality did not understand and implement the transitional provisions included in Directive 

4 correctly. Directive 4 only allows relief in terms of the valuation of properties and not 

the identification, completeness and existence of the properties owned by the Municipality and 

recorded in the Investment Property Register and Annual Financial Statements. 

Investment properties are materially misstated in the Annual Financial Statements. 






The Municipality should indentify all properties registered in the name of the Municipality from 

the valuation roll and deeds search for all areas of the Municipality and update the Investment 

Property Register. The Investment Property Register should be reconciled to the general ledger on 

a monthly basis and the process should be reviewed by the CFO. 





150


INVESTMENTS 

42. Other financial assets - Classification of investments 

Audit finding 

IAS 7.7 states that Cash equivalents are held for the purpose of meeting short-term cash 

commitments rather than for investment or other purposes. For an investment to qualify as a cash 

equivalent it must be readily convertible to a known amount of cash and be subject to an 

insignificant risk of changes in value. Therefore, an investment normally qualifies as a cash 

equivalent only when it has a short maturity of, say, three months or less from the date of 

acquisition. Equity investments are excluded from cash equivalents unless they are, in substance, 

cash equivalents, for example in the case of preferred shares acquired within a short period of their 

maturity and with a specified redemption date. 

The investment with ABSA Acc 288875729, a 32 day account, valued at R5 810.44 (2010: R814 

519.25) as well as a cheque account with ABSA Acc 4061808429, valued at R0 (2010: R204 

950.84) was classified as Investments in the Annual Financial Statements which is in contravention 

of the requirements of IAS7.7. We included this classification finding on the Summary of Material 

Misstatements. 

The Municipality does not review the work performed by the service providers. The Municipal staff 

is not adequately skilled with all the GRAP requirements. 

This will result in a misclassification of Investments and Cash and Bank on the Annual Financial 

Statements. 






The Municipality should take responsibility for all work performed by the service provider. The 

Municipal staff should be upskilled in the GRAP requirements for reporting in the Annual Financial 

Statements. The 32 day account held with Standard Bank as well as the cheque account held with 

ABSA needs to be classified as Cash and Cash Equivalents as per the requirements of GRAP 104: 

Financial Instruments. 





151


MOVABLE ASSETS 

43. Property, plant and equipment - Existence, valuation and completeness of property, 

plant and equipment 

Audit finding 






Existence 

During the audit of Property, Plant and Equipment, the audit team was unable to verify the 

existence of assets as the asset numbers per the fixed asset register submitted for audit 

purposes were not present on the assets itself and we were unable to verify with absolute certainty 

that the assets verified were the assets selected from the fixed asset register. Details of the assets 

that could not be verified are included in the table below: 

Date Classification Item description Amount 

08/09/2008 Infrastructure Zaaimanshoek water 498,137.55 

01/09/2008 Other Equipment Upgrading abbatoir 410,222.28 

01/05/2010 Other Equipment Xerox Copier DC 252 375,600.00 

15/03/2011 Infrastructure Water Meters (loyiso Civil Construction) 339,599.58 

01/04/2011 Infrastructure Steytlerville Electrical 305,938.85 

30/04/2009 Other Equipment IT equipment 264,116.68 

24/05/2011 Infrastructure Wireless Backbone - Klipplaat 263,157.89 




16/10/2009 Other Equipment Electricity Steytlerville 112,136.19 


01/12/2009 Other Equipment Xerox Workcentre 7428 108,235.07 


10/11/2009 Other Equipment Opel Corsa Utility 1.4 (FHP 080 EC) 95,796.58 

26/11/2008 Other Equipment Xerox Workcenter 7328 84,538.82 

02/07/2011 Infrastructure External Streets Down 83,187.50 

10/02/2011 Other Equipment Ford Bantam 1.3i 82,501.57 


26/10/2009 Community 17 Refurbished Dells 54,150.00 

04/02/2009 Community PLAYGROUNDS 50,000.00 

22/04/2010 Infrastructure Conti Blue Rickstackers 37,296.00 

07/10/2009 Other Equipment Desktops for syntell 35,389.90 

24/11/2009 Community Christmas Lights 34,949.60 

19/08/2010 Other Equipment Network for new offices 31,989.48 

27/11/2009 Community Electrical and network points 27,801.57 

31/03/2010 Community Dell Studio 1555 Laptop 25,950.00 

28/09/2009 Other Equipment IT 24,595.15 

25/02/2010 Infrastructure Falcon Blower Mower 23,133.33 

152


Date Classification Item description Amount 

09/03/2010 Infrastructure Portable Digital Chlorine Tester 20,053.81 

17/05/2010 Community Soccer Flags 20,050.40 

09/09/2009 Other Equipment IT 19,969.74 

27/09/2010 Infrastructure Electrical Meters Purchased 15,268.00 

27/05/2011 Infrastructure N Centrifugal Pumps 9,926.54 

14/06/2011 Other Equipment Optiplex 780 Dell desktop 7,389.00 

11/03/2010 Infrastructure Alarm System Willowmore 5,657.89 

19/11/2010 Community Steytlerville Book 5,000.00 

20/04/2011 Other Equipment Industrial Vacuum Cleaner 4,400.00 

05/05/2010 Other Equipment OKI Micrline 391 Turbo 4,209.65 

11/02/2011 Other Equipment Lengths execuduct fitted 4,000.00 

14/08/2009 Other Equipment Dell refurbished Desktop 3,990.00 

26/08/2010 Other Equipment N cabinets - stationery oak 3,852.00 

26/04/2010 Infrastructure 200A Welder Inventor 3,250.00 

11/02/2011 Other Equipment Uplink from server to outside 2,500.00 

03/06/2010 Community Set of soccer posts 2,500.00 

29/10/2010 Other Equipment Network points Library 2,167.73 

24/02/2011 Other Equipment 7600 Visitors arm chair Pleather 1,578.24 

07/12/2010 Other Equipment 5 Tier Book case Oak 1,560.38 

29/11/2010 Other Equipment N HP Laserjet M1132 1,499.00 

11/05/2011 Other Equipment Docking station 1,150.00 

25/11/2010 Other Equipment N Dell E-series docking station 1,056.00 

16/03/2011 Community Kiddies tables and chairs 1,039.80 

06/10/2009 Other Equipment Samsung 23 l White MWO 877.18 

26/08/2009 Other Equipment 4 legged Frame 852.50 

09/06/2244 Other Equipment N 3 Tier bookcase oak melamine 793.75 

22/04/2010 Infrastructure Black Rickstackers 745.92 

07/06/2010 Other Equipment HB Chair Black 712.42 

25/08/2009 Infrastructure Samsung E250 657.89 

30/05/2011 Other Equipment Ellies Quartz electric heater 302.50 

16/03/2011 Other Equipment Budget PVC link 750x750 281.00 

08/03/2011 Other Equipment BEC 33 HC Keypaid 230.00 

This resulted in an extrapolated error of R7 451 855 for existence and has been placed on the 

Summary of uncorrected misstatements. 

Completeness 

In addition to the above, the audit team could also not verify if the fixed asset register is complete 

as the assets selected from floor to sheet did not have asset numbers that could be traced back to 

the fixed asset register with definite certainty. It was confirmed through inspection of the fixed asset 

register that only additions since 2008 have been capitalised. Further testing on repairs and 

maintenance and operating grant expenditure also confirmed that Property, Plant and Equipment is 

not complete as reported in other exceptions. 

153


Valuation 

Supporting documentation could not be obtained to confirm the full value of capital expenditure 

made on the following infrastructure project: 

Asset description: Sidewalks Willowmore 

Amount: R560 948.18 

Total amount confirmed to supporting documentation: R541 037.36 

Item that could not be confirmed: 

Date: 07/12/2010 

Description: Supply Bevel Paving Red & Charco 

Amount: R18 762.23 

This misstatement has been included in the existence limitation misstatement included on the 

summary of uncorrected misstatements. 

The fixed asset register does not have sufficient detail regarding the asset i.e. location, 

description or asset number, in order to accommodate physical verification of fixed assets. 

Property, Plant and Equipment is materially misstated in the Annual Financial Statements. 

In addition to this it may result in misappropriation of assets. 






The fixed asset register should have sufficient detail regarding the individual asset i.e. reference 

number, location, description and asset number which can be correlated to the physical asset 

reflecting the asset number. 





misstatements and limitations will have an effect on the audit opinion expressed. 

154


44. Property, plant and equipment - Incorrect classification of property, plant and 

equipment 

Audit finding 






In terms of GRAP 17.47, a class of property, plant and equipment is a grouping of assets of 

a similar nature or function in an entity's operations. All assets should be disclosed in the Annual 

Financial Statements according to these classes. 

During the audit of property, plant and equipment it was noted that all fixed assets were classified 

as either infrastructure assets, community assets or other equipment. It was further noted that 

each of these fixed asset classes contained assets that are either incorrectly classified or could not 

be classified as any of the above-mentioned classes. 

Fixed assets classified in the incorrect categories: 

Date Classification Description Amount Class per nature 

03/12/2009 Infrastructure CM Colour TV 1,599.00 Electronic 

Equipment 

25/08/2009 Infrastructure Samsung E250 657.89 Electronic 

Equipment 

Plant and 

25/02/2010 Infrastructure Falcon Blower Mower 23,133.33 

09/03/2010 Infrastructure 

Portable Digital Chlorine 

Tester 

20,053.81 

22/04/2010 Infrastructure Conti Blue Rickstackers 37,296.00 

22/04/2010 Infrastructure Black Rickstackers 745.92 

26/04/2010 Infrastructure 200A Welder Inventor 3,250.00 

Equipment 

Plant and 

Equipment 

Furniture and 

Fittings 

Furniture and 

Fittings 

Plant and 

Equipment 

30/11/2008 Community Reservoir & Watermains 2,068,531.88 Infrastructure 

26/05/2009 Community Wanhoop Scheme 1,592,731.46 Infrastructure 

16/03/2011 Community Kiddies tables and chairs 1,039.80 

Furniture and 

Fittings 

26/10/2009 Community 17 Refurbished Dells 54,150.00 Electronic 

Equipment 

27/11/2009 Community 

Electrical and network 

27,801.57 Electronic 

points 

Equipment 

31/03/2010 Community Dell Studio 1555 Laptop 25,950.00 Electronic 

Equipment 

155


Fixed assets where the classification as other equipment is insufficient and should have been 

classified as electronic equipment, motor vehicles, furniture and fittings or plant and equipment: 

Date Classification Description Amount 

01/09/2008 

Other 

Equipment 

20/02/2009 

Other 

Equipment 

19/03/2009 

Other 

Equipment 

30/04/2009 

Other 

Equipment 

26/09/2008 

Other 

Equipment 

12/11/2008 

Other 

Equipment 

16/10/2009 

Other 

Equipment 

11/06/2010 

Other 

Equipment 

01/12/2009 

Other 

Equipment 

01/05/2010 

Other 

Equipment 

02/07/2010 

Other 

Equipment 

28/08/2010 

Other 

Equipment 

28/08/2010 

Other 

Equipment 

28/08/2010 

Other 

Equipment 

28/08/2010 

Other 

Equipment 

19/08/2010 

Other 

Equipment 

11/02/2011 

Other 

Equipment 

11/02/2011 

Other 

Equipment 

16/03/2011 

Other 

Equipment 

24/02/2011 Other 

Equipment 

08/03/2011 

Other 

Equipment 

11/05/2011 

Other 

Equipment 

14/06/2011 

Other 

Equipment 

26/08/2010 

Other 

Equipment 

Upgrading Abbatoir 

IT equipment 

IT equipment 

IT equipment 

IT equipment 

Toyota Corolla (FCS512EC) 

410,222.28 

114,045.23 

109,485.80 

264,116.68 

100,998.23 

142,423.30 

Class per 

nature 

Plant and 

Equipment 

Electronic 

Equipment 

Electronic 

Equipment 

Electronic 

Equipment 

Electronic 

Equipment 

Motor 

Vehicles 

Electricity Steytlerville 12,136.19 Infrastructure 

Ford Bantam(FKV 266 EC) 

Xerox Workcentre 7428 

Xerox Copier DC 252 

Hino 300 814 LWB 4x2 

Kelvinator Stove 4 plates 

Small office table 

54 cm Television Tedelex 

Kitchen table with 4 chairs 

Network for new offices 

Lengths execuduct fitted 

Uplink from server to outside 

Budget PVC link 750x750 

7600 Visitors arm chair 

BEC 33 HC Keypaid 

Docking station 

Optiplex 780 Dell desktop 

N Cabinets - Stationery 

108,003.11 

108,235.07 

375,600.00 

279,483.62 

2,631.57 

964.90 

1,228.06 

764.91 

31,989.48 

4,000.00 

2,500.00 

281.00 

1,578.24 

230.00 

1,150.00 

7,389.00 

3,852.00 

Motor 

Vehicles 

Electronic 

Equipment 

Electronic 

Equipment 

Motor 

Vehicles 

Electronic 

Equipment 

Furniture and 

Fittings 

Electronic 

Equipment 

Furniture and 

Fittings 

Electronic 

Equipment 

Electronic 

Equipment 

Electronic 

Equipment 

Electronic 

Equipment 

Furniture and 

Fitting 

Electronic 

Equipment 

Electronic 

Equipment 

Electronic 

Equipment 

Furniture and 

Fittings 

156


29/11/2010 

06/12/2010 

25/11/2010 

29/10/2010 

07/12/2010 

30/05/2011 

20/04/2011 

10/02/2011 

05/03/2009 

26/11/2008 

26/08/2009 

06/10/2009 

05/05/2010 

07/06/2010 

14/08/2009 

09/09/2009 

28/09/2009 

07/10/2009 

10/11/2009 

Other 

Equipment 

Other 

Equipment 

Other 

Equipment 

Other 

Equipment 

Other 

Equipment 

Other 

Equipment 

Other 

Equipment 

Other 

Equipment 

Other 

Equipment 

Other 

Equipment 

Other 

Equipment 

Other 

Equipment 

Other 

Equipment 

Other 

Equipment 

Other 

Equipment 

Other 

Equipment 

Other 

Equipment 

Other 

Equipment 

Other 

Equipment 

N HP Laserjet M1132 

N 3 Tier bookcase oak 

N Dell docking station 

Network points Library 

5 Tier Book case Oak 

Ellies Quartz electric heater 

Industrial Vacuum Cleaner 

Ford Bantam 1.3i 

IT equipment 

Xerox Workcenter 7328 

4 legged Frame 

Samsung 23 l White MWO 

OKI Micrline 391 Turbo 

HB Chair Black 

Dell refurbished Desktop 

IT 

IT 

Desktops for Syntell 

Opel Corsa (FHP 080 EC) 

1,499.00 

793.75 

1,056.00 

2,167.73 

1,560.38 

302.50 

4,400.00 

82,501.57 

66,511.25 

84,538.82 

852.50 

877.18 

4,209.65 

712.42 

3,990.00 

19,969.74 

24,595.15 

35,389.90 

95,796.58 

Electronic 

Equipment 

Furniture and 

Fittings 

Electronic 

Equipment 

Electronic 

Equipment 

Furniture and 

Fittings 

Electronic 

Equipment 

Electronic 

Equipment 

Motor 

Vehicles 

Electronic 

Equipment 

Electronic 

Equipment 

Furniture and 

Fittings 

Electronic 

Equipment 

Electronic 

Equipment 

Furniture and 

Fittings 

Electronic 

Equipment 

Electronic 

Equipment 

Electronic 

Equipment 

Electronic 

Equipment 

Motor 

Vehicles 

157


These misclassifications have been extrapolated to represent the misclassification of the entire 

Property, Plant and Equipment population. The total extrapolated error amounts to R8 689 990.22. 

We have apportioned the extrapolation to the various asset classes by applying the error rate in 

our sample per asset class over the total population. The effect of our apportionment is detailed 

below: 

Classified as 

Class per Number % of total items Value 

nature/function 

identified 

Infrastructure 7 12.50% (R1,086,248.78) 

Plant and Equipment 3 42.86% R465,535.19 

Furniture and Fittings 2 28.57% R310,356.79 

Electronic Equipment 2 28.57% R310,356.79 

Community 6 10.71% (R931,070.38) 

Infrastructure 2 33.33% R310,356.79 

Furniture and Fittings 1 16.67% R155,178.40 

Electronic Equipment 3 50.00% R465,535.19 

Other Equipment 43 76.79% (R6,672,671.06) 

Motor vehicles 5 11.63% R775,891.98 

Plant and Equipment 1 2.33% R155,178.40 

Electronic Equipment 28 65.12% R4,344,995.11 

Infrastructure 1 2.33% R155,178.40 

Furniture and Fittings 8 18.60% R1,241,427.17 

It was also noted that in note 10 of the annual financial statements, the municipality disclose 

heritage assets. There is however no such asset class included in the fixed asset register or 

separately disclosed in the annual financial statements. 

Due to the transitional provision allowed by Directive 4, the Municipality has classified Property, 

Plant and Equipment into 3 broad categories. These categories will be refined as part of the 

unbundling process. 

The disclosure of Property, Plant and Equipment in the Annual Financial Statements does not 

meet the requirements of GRAP 17 and could result in an audit qualification. 






The Municipality should determine the appropriate classification of all assets when they are 

purchased. For all existing assets the classification should be reassessed as part of the physical 

asset count which should be performed at least on a quarterly basis. 





158


45. Property, plant and equipment - Unable to verify that grants relating to capital grant 

expenditure was utilised for its intended 

Audit finding 

DORA section 15(1): Despite anything to the contrary contained in any law, an allocation referred 

to in schedule 4, 5, 6, 7 or 8 may only be utilised for the purpose stipulated in the schedule 

concerned and in accordance with the framework published in terms of section 14 

We could not obtain supporting documentation for the grant expenditure listed below to verify 

whether the grant was utilised for its intended purpose. 

Date Description Amount 

23/07/2010 Molex network Points R2 085.00 

08/12/2010 Laptop bags value case R310.00 

13/12/2010 Stationary Cupboards R2 493.75 

13/12/2010 3 Tier book case oak melamine R793.75 

11/02/2011 Lengths Excuduct fitted R4 000.00 

16/03/2011 Budget PVC Link 750x750 R281.00 

24/02/2011 7600 Visitors arm chair Pleather R1 578.24 

08/03/2011 BEC 33 HC Keypad R230.00 

22/03/2011 Wall Unit 1900x900x450 R2 368.75 

11/05/2011 Dell Laptop R8 899.00 

05/10/2010 Folding tables 16mm oak R13 680.00 

25/02/2011 Electric High Speed blower R899.00 

08/03/2011 Network points at youth centre R3 612.20 

08/03/2011 Network points at youth centre R31 349.31 

26/04/2011 Extension of Wanhoop R21 546.00 

The extrapolated amount over the population is R196 630.21. This amount has been included on 

the Summary of uncorrected misstatement. 

Management does not have a proper record keeping system in place to ensure that all supporting 

documentation are kept together and filed in a certain order and thus this relevant supporting 

documentation could not be provided to the Audit team. 

Non-compliance with section 15(1) of the DORA. 

Capital grant expenditure might not have been incurred in terms of the grant conditions. This would 

result in the overstatement of Grant revenue and the understatement of Unspent Conditional 

Grants. These expenditure items also represent unauthorised expenditure as defined by the 

MFMA. 


Leadership 




Documentation supporting utilisation of grants should be filed per type of grant. This will ensure 

that the Municipality has proof that all grants was utilised for its intended purpose 

159






misstatements will have an effect on the audit opinion expressed. 

160


OPERATING EXPENDITURE 

46. Expenditure - Projected limitation misstatement due to supporting documentation not 

obtained 

Audit finding 





control.” 

Supporting documentation was not accessible and available to support the following items selected 

for testing: 

Payment vouchers and invoices: 

Payment voucher 

Description 

Amount 

Number 

7134 Courier Fee Included R162.28 

7117 Correction wrong allocations R1 647.89 

6561 Correction wrong allocation R10 220 

Waltons Office Pens Black R34.98 

7570 Willowmore Fax and Telephone R400.00 

10629 Correction of Bank recon R163.80 

7009 Floatvalvekleenflo R543.51 

7150 Coup Com CXC R133.25 

7150 Ferrule Crimp 10 mm R145.61 

7109 Bung Rubber For Flush Pipe R32.11 

Correction of Investments 

-R81.41 

6952 Repair & Supply Pump On Fire Trailer R6 457.87 

6415 Caprichemwhite Wipe R48.07 

10730 Willowmore Fax and Telephone R16 052.29 

7130 Subscription new Premicell R3 530.17 

6401 Payment of Insurance R158 283 

6729 GM SIR Scrub Foam Scourers 3’s R15.00 

10730 Willowmore Fax and Telephone R217.58 

10730 Salarisse R110.23 

7070 Fuel For Council R55 867.16 

8142 Oustin 3 in 1 Floral Scent R35.90 

7737 Arabell Gloss White R386.40 

010081900095438 Departmental PaB R1 238.74 

10825 Electricity Purchase Steytlerville R500.00 

10101 Catering for AuPair Certificate Ceremony R1 067 

6786 Upgrading of Municipal Premises R3 000.00 

9007 Ricoffy sugar and Cremora Milk R709.23 

9034 1.8m Long Ysterpale,Roi Sifdraad,Wewlding Rods R994.86 

9017 Klas 9.75m PVC PYP R5 789.70 

10017 Advertising Costs R1 743.23 

10188 Palisade Spikes R180.00 

10192 Welding R113.32 

10197 Quick Start – Piet Viljoen R51.30 

10247 Gloves R16.80 

10493 Postage of pamphlets to Beaufort West (10980) R133.55 

161


Journal Entries: 

Journal Number DESCRIPTION Amount 

A6/10/11 Administration Infrastructure R5 542.46 

A22/10/11 Correction of Investment -R81.41 

A97/10/11 Correction of Vat per Maxpr of Summary -R207.54 

400970 Correction wrong allocation R8 138.35 

A86/10/11 Correction of Bank recon R163.80 

This resulted in a projected limitation misstatement of R5 643 920.38 that was included on the 


Supporting documentation is not kept in a secure environment and there are no physical controls 

for movement of documentation. 

Expenditure might be misstated in the Annual Financial Statements. 






Management should implement physical access controls to limit access to payment and journal 

files. A register should be maintained whereby any person that removes documentation must sign 

upon receipt and return of the documentation. The Accountant: Expenditure should co-sign to 

confirm when the document is taken and returned. 






162


47. Expenditure - Factual disagreement misstatements on misstatement of expenditure 

Audit finding 





During the testing of expenditure for bulk purchases, the following issues were noted: 

Bulk Purchases: 

Payment voucher number 11014 dated 26/05/2011 amounting to R533 128.51, the statement 

relating to the payment indicates interest charged of R2 239.81 which was incorrectly recorded in 

the bulk purchases vote (10074099). The finance charges were understated by the same amount. 

Payment voucher number 11043 dated 08/07/2011 amounting to R663 956, the statement relating 

to the payment indicates interest charged of R5 716.49 was incorrectly claimed as input VAT and 

recorded in the input VAT vote. 

Finance costs: 

Expenditure of R170 280.56 was recognised as Finance costs in the Annual Financial Statements 

and the same amount was used to reduce Bulk purchases expenditure. 

Inspection of supporting computations reveal that the interest was computed using the average 

payment days of 42 and the average prime rate of 11.29% for the year, these variables were used 

to discount expenditure of R43 202 779.94 to R43 032 499.38 resulting in a finance element. On 

initial recognition there is no financing element regarding the liability raised and thus cannot be 

disclosed as finance charges in the Annual Financial Statements. 

Recalculation of Finance Costs relating to finance leases amounted to R303 466.18 whereas the 

amount recorded in the Annual Financial Statements was R305 935.30, resulting in a difference of 

R2 469.12. 

A factual disagreement misstatement of R3 247.37 has been recorded on the Summary of 

uncorrected misstatements. 

The CFO does not review the general ledger on a monthly basis to ensure transactions are 

recorded appropriately and accurately. The incorrect application of the standards of GRAP to 

address expenditure not paid within 30 days of invoice was applied. 

The effects of these misstatements in the Annual Financial Statements are as follows: 

Statement of Financial Performance: 

Bulk purchases are understated by R167 760.19 

Finance charges are overstated by R164 512.82 

Statement of Financial Position: 

VAT Input is overstated by R5 716.49 

Finance Lease Liabilities are overstated by R2 469.12 

Journal of R170 280.56 do not have a financial impact as the journal is between 2 expenditure 

votes and therefore if reversed, the total expenditure remain the same. 

163



Finance and performance management 



Transaction batches should be reviewed once recorded in the general ledger by comparing the 

actual general ledger entries with the supporting documentation to confirm that the entries have 

been recorded accurately and allocated to the correct general ledger accounts. 

The interest journal of R170 280.56 relating to the "fair value" of expenditure should be reversed. 

Finance cost relating to finance leases should be calculated using the effective interest rate 

applicable to the individual leases. The difference between the lease payments and the interest 

calculation should be offset against the finance lease liability capital portion. 






164


48. Expenditure - Projected disagreement misstatements due to inaccurate processing of 

invoices 

Audit Finding 

According to the VAT Act s 20(4)(a-g) the following information should be displayed by a valid tax 

invoice for a registered VAT vendor to be able to claim input VAT: 

The seller’s name and VAT registration number 

The buyer’s name and VAT registration number 

VAT was charged on the transaction at 14% 

2. In terms of GRAP 17 expenditure that meets the definition of an asset should be capitalised. 

There is no threshold that assets under a certain amount can be expensed. 

3. According to MFMA section 62(1)(c), the accounting officer of a municipality is responsible for 




During our testing of expenditure we noted the following discrepancies: 

Input VAT incorrectly claimed on invoices from Non-VAT vendors: 

Voucher No: Date Amount 

6936 23//09/2010 -R42.00 

6612 27/08/2010 -R294.00 

6936 23/09/2010 -R88.75 

7366 06/01/2011 -R17.43 

7516 17/02/2011 -R226.95 

7516 26/01/2011 -R48.29 

7876 18/04/2011 -R9.63 

8142 29/09/2010 -R846.92 

8133 26/05/2011 -R1 389.72 

7587 15/03/2011 -R925.68 

Input VAT not claimed on valid tax invoices: 

Voucher No: Date Amount 

8110 01/06/2011 R2.01 

8100 31/05/2011 R221.38 

8179 1 /06/ 2011 R45.50 

7093 30/11/2010 R420.37 

7090 30/10 /2010 R4.91 

7765 15/04/ 2011 R0.61 

7765 15 04/2011 R0.61 

7765 15/04/2011 R1.46 

6563 03/08/2010 R3.75 

6621 09/09/2010 R4.67 

7738 22/03/2011 R2.45 

7398 10/02/2011 R16.10 

7017 15/11/2010 R234.78 

7237 02/12/2010 R53.87 

7357 26/01/2011 R190.86 

165

8101 25/03/2011 R5.17 

7678 30/03/2011 R51.87 

8139 06/04/2011 R195.30 

8111 06/04/2010 R396.10 

6927 04/11/2011 R0.49 

6325 15/07/2010 R239.47 

6416 30/07/2010 R2.82 

6518 18/08/ 2010 R22.76 

6718 05/10/ 2010 R237.30 

10970 06/04/ 2011 R155.62 

7839 29/11/ 2010 R453.16 

7499 24/02/ 2011 R0.96 

6813 14/10/ 2010 R110.53 

7237 20/12/2010 R4.31 

8139 19/04/2011 R110.84 

8110 17/05/2011 R229.64 

6927 14/10/2010 R3.67 

6927 14/10/2010 R33.67 

8142 11/08/2011 R114.07 

6972 21/10/2011 R9,19 

7089 24/11/2010 R48,93 

7150 24/11/2010 R9,50 

7287 12/01/2011 R6.08 

7385 29/10/2010 R3.68 

7901 12/05/ 2011 R8.40 

6817 13/10/2010 R3.33 

6972 14/10/2010 R3.67 

10812 20/05/2011 R308.21 


2. Assets not capitalised: 

During our testing of the repairs and maintenance expense account it was noted that the following 

items of a capital nature was incorrectly expensed: 

Invoice Number Description Amount 

181498 Pikke R399.60 

3097523 Heater R302.50 

181463 Pikke R277.02 

3. Invoice amounts do not agree to amounts recorded in the general ledger 

Order Number Amount per invoice Amount recorded in GL 

102935 R9 157.71 R10 205.57 

8712 R15 022.71 R14 829.20 

9668 R495.65 R447.36 

This resulted in a projected disagreement misstatement of R180 798.30 that was included on the 


The processing of invoices into the general ledger is not reviewed to confirm accuracy thereof. 

Monthly VAT reconciliations is not performed. 

166


Based on the nature of the findings the projected misstatement can be split as follows: 

Expenditure is overstated by R180 798.30, VAT receivables is understated by R111 628.92 and 

Property, Plant and Equipment is understated by R69 169.38 in the Annual Financial Statements 


Leadership 




Before any payment is released, the person responsible for authorising the payment must inspect 

the invoices and the processing thereof into the general ledger to verify that the amounts including 

the VAT treatment was performed accurately. 

The following should be checked on the invoice to confirm that it is a valid tax invoice: 

The words "Tax invoice" should be displayed on the invoice 

The seller’s name and VAT registration number should be displayed 

The buyer’s name and VAT registration number should be displayed 

VAT was charged on the transaction at 14% 

The payment of any invoices which does not contain the above mentioned information should be 

deferred and an amended invoice should be requested from the supplier 

As part of the review of the transactions, the correct allocation as either capital or operating 

expenditure should be verified. 





misstatements will have have an effect on the audit opinion expressed. 

167


49. Expenditure - Misclassification of casual wages as operating expenditure 

Audit finding 





control.” 

Expenditure amounting to R2 754 901 included in GL number: 10050003 was incorrectly classified 

under operating expenditure. Upon performing detail testing it was noted that the expenditure 

included in this GL account related to EPWP wages which should be classified as part of 

Personnel Expenditure and the purchase of tools which should be classified as part of Property, 

Plant and Equipment. Based on our error rate in our sample selected for testing we calculated that 

0.32% of the expenditure should be classified as Property, Plant and Equipment and 99.68% 

should be classified as Personnel Expenditure. 

The tools identified which appear to be incorrectly classified are listed below: 

Description 

Amount 

Kapmesse 

R3,367.00 

Graaf Spit Lasher Swart 70-0101 R470.25 

Saag Boog 750mm Lasher HD R208.95 

This results in the following extrapolated errors: 

Property, Plant and Equipment: R8 949.32 

Personnel Expenditure: R2 745 951.84 

Lack of knowledge about requirements of standards regarding the classification of expenditure in 

the AFS. 

Expenditure is misclassified in the Annual Financial Statements. This results in the overstatement 

of General Expenditure and the understatement of Property, Plant and Equipment and Personnel 

Expenditure. 


Leadership 




Transactions should be classified in terms of their function in all instances. This implies that if the 

item purchased meets the definition of an asset it should be capitalised and if the function of the 

expenditure is related to remuneration of individuals employed by the Municipality it should be 

classified as part of the Personnel Expenditure line item in the Annual Financial Statements. 





168


50. Expenditure - Misstatements relating to journal entry testing 

Audit finding 





Supporting documentation was not accessible and available to support the following journal entries 

selected for testing: 

Factual limitation misstatements: 

Journal Entry Date Journal Entry 

Description 

Amount 

Number 

30/06/2011 163461 Arts and Craft expenses R329 800.00 

wrongly allocated 

30/06/2011 A56/10/11 Disclosure Tourism R333 713.83 

This resulted in a factual limitation misstatement of R663 513.83 that was included on the 


Projected limitation misstatements: 

Journal Entry Date Journal Entry 

Description 

Amount 

Number 

30/06/2011 441051 Correction wrong allocations -R27 572.78 

30/06/2011 A95/10/11 Correction of vat per Maxprof -R134.28 

summary 


30/06/2011 A104/10/11 Correction of votes for MSIG -R5 343.11 

30/06/2011 A86/10/11 Correction of bank account per R450.00 

June 2011recon 

30/06/2011 126931 Wrong allocation of 

R5 000.00 

expenditure 

30/06/2011 A86/10/11 Correction of bank account per R2 250.00 

June 2011recon 

30/06/2011 119631 Departmental cost 2011 R26 302.00 


30/06/2011 A6/10/11 Additions to infrastructure out 

of repairs 

30/06/2011 A90/10/11 Reclassify expenses votes in a 

credit duet co 

30/06/2011 123281 Wrong allocation of 

expenditure 

-R5 542.46 

-R316.41 

R95 444.20 

This resulted in a projected limitation misstatement of R485 545.13 that was included on the 


169


Factual disagreement misstatements: 

Journal entry number A60/10/11 with description, Disclosure: MIG Operating was recorded for an 

amount of R771 285.52. Upon inspection of the supporting documentation we could only confirm 

valid transactions amounting to R770 343.91. Therefore the variance of R941.61 represents a 

factual disagreement misstatement that has been included on the Summary of uncorrected 

misstatements 

When journal entries are prepared, no supporting documentation is attached to the journal entry 

sheets. 

The journals could not be audited to verify whether they related to valid and authorised 

expenditure. This could result in the misstatement of expenditure in the Annual Financial 

Statements. 


Leadership 







The municipality should implement controls whereby no journals are allowed to be prepared and 

authorised without the relevant supporting documentation. Before authorising any journal entries, 

the supporting documentation should be reviewed to confirm validity and accuracy of journal. The 

supporting documentation should be filed along with the authorised journal sheet. 






170


51. Expenditure - Comparative amounts per prior annual financial statements do not agree 

to amounts per general ledger 

Audit finding 





control.” 

The prior year general ledger does not agree to the amounts recorded in the Annual Financial 

Statements for 2010 for the following accounts: 

Description Amount per GL Amount per Differences 

AFS 

Advertising R67 690.06 R67 691.00 -R0.94 

Auditors remuneration R812 510.09 R812 510.00 R0.09 

Bank charges R70 739.43 R70 739.00 R0.43 

Cleaning R12 372.44 R12 372.00 R0.44 

Commission paid R69 462.88 R69 463.00 -R0.12 

Consulting and professional R79 128.59 R79 129.00 -R0.41 

fees 

Consumables R13 458.40 R13 115.00 R343.40 

General expenses transferred from 

-R0.00 R8 342 719.00 -R8 342 719.00 

grants 

Donations R25 996.10 R25 996.00 R0.10 

Insurance R188 691.72 R188 692.00 -R0.28 

Pest control R3 808.50 R3 634.00 R174.50 

Fuel and oil R442 567.37 R442 568.00 -R0.63 

Postage and courier R108 388.66 R108 389.00 -R0.34 

Printing and stationery R285 937.29 R161 219.00 R124 718.29 

Special projects R1 042 161.73 R955 129.00 R87 032.73 

Research and development R338 254.23 R58 816.00 R279 438.23 

costs 

Subscriptions and membership R68 806.66 R68 807.00 -R0.34 

fees 

Telephone and fax R639 395.94 R343 119.00 R296 276.94 

Training R260 530.26 R260 531.00 -R0.74 

Travel - local R149 397.80 R106 633.00 R42 764.80 

Electricity R473 551.21 R473 356.00 R195.21 

Utilities - other R220 520.44 R220 521.00 -R0.56 

Tourism development R292 770.79 R299 777.00 -R7 006.21 

Departmental charges R1 972.50 R1 973.00 -R0.50 

Capital expenditure R335 766.50 R335 767.00 -R0.50 

Licences R37 654.39 R36 640.00 R1 014.39 

Town planning R81 999.95 R32 394.00 R49 605.95 

Administration fees R2 759 306.84 R51 832.00 R2 707 474.84 

Provision for doubtful debts R105 844.60 R105 845.00 -R0.40 

Chemicals R130 369.38 R129 951.00 R418.38 

Other expenses R23 934.87 R17 298.00 R6 636.87 

Rendering of services R-13 271.31 R-2 085.00 -R11 186.31 

Bulk Purchases - Electricity R4 713 199.91 R4 598 782.00 R114,417.91 

TOTAL R13 842 918.22 R18 493 322 R4 650 403.78 

171


This variance has been included on the Evaluation of misstatements in corresponding figures 

summary. 

Several year-end was passed directly onto Caseware in the prior year without adjusting 

the general ledger accordingly. 

The comparative figures for expenditure might be misstated in the Annual Financial Statements. 


Leadership 




All journals affecting the financial records of the Municipality should be processed in the general 

ledger. Caseware should only be utilised for preparing the Annual Financial Statements and the 

related disclosures. No journals should be processed on Caseware. 





172


52. Expenditure - Incorrect journal posted to bad debt written off expense 

Audit finding 





A journal of R174 420.83 was incorrectly debited to vote 10008398 (Bad debt written off) and 

credited to vote 4000990032 (Bank). This journal was to correct an amount that should not have 

been receipted and recorded in the General Ledger. The original entry was however never posted 

to vote 10008398, therefore resulted in a further error. 

The entry was posted to the incorrect vote and management did not review the journal posted for 

accuracy and appropriateness. 

Bad debt expense is overstated and bank is understated by R174 420.83. 





The journal should be supported by valid supporting documentation otherwise it should be 

reversed. Management should review all journals posted into the general ledger for accuracy and 

appropriateness. 





173


53. Expenditure - No supporting documentation for bad debts written off 

Audit finding 





During our testing performed on bad debts written off, we could not obtain any audit evidence or 

approval for an amount of R2 460 927.88 written off in the current year. 

The Municipality could not provide us with a detailed list of the bad debt which was written off in the 

current year to an amount of R2 460 927. This is a limitation of scope as we were not able to audit 

this amount. 

There is a time lapse between the compilation of the list and the submission to Council for approval 

resulting in the bad debts identified on the list being understated. There is also a delay in the 

approval and the actual write off of the bad debts in the general ledger. 

Disclosure for unauthorised expenditure is not complete. 

Bad debt expense is overstated by R709 441.40, the provision is understated by R1 751 486.48 

and trade receivables is understated by R2 460 927.88. 






All bad debts written off during the year must be approved by Council. The list of bad debts that are 

submitted to Council should be compiled on the day before the Council meeting and the approved 

bad debts should be written off the day after the Council meeting. 





174


54. Expenditure - Factual limitation misstatement due to supporting documentation not 

obtained 

Audit finding 





Supporting documentation was not accessible and available to support the following items 

specifically selected for 100% testing: 

Date 

Document 

Description 

Amount 

number 

30/06/2011 247461 Interest paid moved to correct account R2 374.40 

30/06/2011 52/10/11 Finance costs R1 742.11 

02/07/2011 8067 Attending Audit Committee Meeting R7 121.71 

This resulted in a factual limitation misstatement of R11 238.22 that was included on the Summary 

of uncorrected misstatements. 

Supporting documentation is not kept in a secure environment and there are no physical controls 

for movement of documentation. 

Expenditure might be misstated in the Annual Financial Statements. 






Management should implement physical access controls to limit access to payment and journal 

files. A register should be maintained whereby any person that removes documentation must sign 

upon receipt and return of the documentation. The Accountant: Expenditure should co-sign to 

confirm when the document is taken and returned. 






175

55. Expenditure - Limitation misstatements for prior period error testing 

Audit finding 






During our testing of prior period error corrections relating to expenditure, supporting 

documentation was not accessible and available to support the following journal entries selected 

for testing: 

Factual limitation misstatements: 


30/06/2011 Administrasie: Finan E bydrae tot Fondse voorsiening - 

slegte -R82 323.40 

30/06/2011 Elektrisiteit E Algemene Uitgawes Grootmaataankope esk -R18.83 

30/06/2011 Finance Costs - Rehabilitation Provision R91 587.30 

30/06/2011 Administrasie: Finan E Salarisse, Lone En T Amortisation- R29 307.41 

Intangi 

30/06/2011 Water E Herstel En Onderhoud Amortisation-Intangi R42,681.30 

30/06/2011 Publieke Werke X Below the line other R67 295.33 

30/06/2011 Administrasie E Algemene Uitgawes posgeld R20 705.79 

30/06/2011 Administrasie E Algemene Uitgawes telefoon R21 656.02 

This Resulted In A Factual Limitation Misstatement Of R216 281.24 that was included on The 

Summary Of Uncorrected Misstatements. 

Projected Limitation Misstatement: 


30/06/2011 Administrasie: Finan E Algemene Uitgawes Finance 

Charges-Fina -R20 510.05 

30/06/2011 Community Services E Algemene Uitgawes Aids 

Council R2 372.97 

30/06/2011 Community Services E Algemene Uitgawes Arts and 

Culture R1 926.89 

30/06/2011 Tourism E Algemene Uitgawes Website R9 033.33 

30/06/2011 Munisipale Grond En E Herstel en Onderhoud Geboue R9 113.59 

30/06/2011 Publieke Werke E Algemene Uitgawes Brandstof & Olie 

voe R6 667.63 

30/06/2011 Elektrisiteit E Herstel en Onderhoud Amortisation-Intangi R7 333.45 

30/06/2011 Water E Herstel en Onderhoud Vehicles Maintenance R14 145.88 

This resulted in a projected limitation misstatement of R66 229.25 that was included on the 


When journal entries are prepared, no supporting documentation is attached to the journal entry 

sheets. 

The journals could not be audited to verify whether they related to valid prior period error 

corrections to expenditure. This could result in the misstatement of Accumulated Surplus in the 

Annual Financial Statements. 

176



Leadership 




The municipality should implement controls whereby no journals are allowed to be prepared and 

authorised without the relevant supporting documentation. Before authorising any journal entries 

the supporting documentation should be reviewed to confirm validity and accuracy of journal. The 

supporting documentation should be filed along with the authorised journal sheet. 






177


PAYABLE 

56. Trade and other payables - The sub ledger does not agree to the trade payables control 

account 

Audit finding 





The reconciliation as at 30 June 2011 between the trade payables listing and the trade payables 

control account in the general ledger differs by R105 100. No supporting documentation could be 

provided to substantiate the difference as requested per RFI 18 issued on 30 August 2011 and due 

on the 02 September 2011. 

Trade payable reconciliations are not performed on a monthly basis. 

Trade Payables are understated by R105 100 in the Annual Financial Statements. 





Trade payables reconciliations should be completed on a monthly basis. All discrepancies should 

be followed up and resolved timeously. The Chief Financial Officer should review this reconciliation 

and sign the reconciliation as evidence of review. 


Management agreed with the audit finding and root cause and will implement the recommendation 



178

57. Trade and other payables - Unrecorded liabilities 

Audit finding 


Per Section 65 of the MFMA, the accounting officer must ensure that the municipality has and 

maintains an effective system of expenditure control, including procedures for the approval, 

authorisation, withdrawal and payment of funds. 

Per paragraph 37 of the Framework for the Preparation and Presentation of financial statements, 

financial statements should be prepared on the accrual basis of accounting. Under this basis, the 

effects of transactions and other events are recognised when they occur (and not as cash or its 

equivalent are received or paid) and they are recorded in the accounting records and reported in 

the financial statements of the periods to which they relate. Financial statements prepared on the 

accrual basis inform users not only of past transactions involving the payment and receipt of cash 

but also of obligations to pay cash and/or deliver services in the future and of resources that 

represent cash to be received and/or potential to deliver services in the future. Hence, they provide 

the type of information about past events and other transactions that is most useful to users to 

assess the responsibility for accountability of government. 

The payments subsequent to year-end were tested and on inspection of the invoices it was noted 

that the goods and services were received prior to year. An accrual was not raised for the 

expenses prior to year-end end resulting in the payables liability account being understated. The 

projected disagreement misstatement amounts to R234 382,92. 

The invoices for various payments could not be provided resulting in a limitation 

misstatement. The factual limitation misstatement amounts to R222 914.76 and a projected 

limitation misstatement of R5 406 424.48. 

Projected disagreement misstatement detail: 

Invoice Amount Invoice Date Bank 

Supplier 

Number 

statement Date 

Piet Viljoen 24132 R4 380,00 5 May 8 July 

Motors 

Eskom 781460207257 R853,80 3 May 9 July 

Aurecon 106437/1Fees R114 785,25 4 May 3 August 

A. Knoetzne 047/2011 R26 000,00 28 July 19 August 

Eskom Tjek 596641155864; R88 363.87 June 2011 and 11 July 2011 

11050 

Hoofkantoor 

652741784475; 

512306950083; 

864219861092; 

809207093816; 

771340410856; 

851515924111; 

904484894860; 

655260520985; 

951496049379; 

556566355097; 

904484825590; 

655260594159; 

743810945614; 

790739595949; 

781460277033; 

693057577350; 

563874397926; 

996370189051; 

951496081553; 

623229441264; 

556566395434; 

May 2011 

179


Factual limitation misstatement detail: 

Invoice Amount Invoice Date Bank 

Supplier 

Number 

statement Date 

Baviaans Mabsa Not provided R44 993,18 Not Given Not Given 

fleet 

Fintech- 

Not provided R23 334,19 Not Given Not Given 

Bma013AAA 

Baviaans Mabsa Not provided R52 047,63 Not Given Not Given 

Fleet 

Hoofkantoor 

Acc 

R11 275,71 Not Given Not Given 

Tjek 11063 7713404497 

Hoofkantoor 

Tjek 11063 

Acc 

8515159149 

R7 507,33 Not Given Not Given 

Fintech- 

Bma013AAA 

Baviaans Mabsa 

Fleet 



Projected limitation misstatement detail: 

Supplier 

Invoice 

Number 

Amount Invoice Date Bank 

Statement Date 

Old Mutual Not Given R9 882,99 Not Given 04/07/2011 

Group 

TJS Employee Not Given R3 376,94 Not Given 04/07/2011 

Benefit 

Metropolitan Life Not given R7 404,04 Not Given 08/07/2011 

Discovery 

Not given R533,00 Not Given 11/07/2011 

Health 

Vodacom Not given R330,34 Not Given 25/07/2011 

Cab Holdings Not Given R14 356,44 Not Given 05/07/2011 

Baviaans Kafee Not Given R4892,33 Not Given 08/07/2011 

Ibuyile Gen Not Given R3 503,82 Not Given 08/07/2011 

Dealers 

Cheque 11042 Not Given R6 600,00 Not Given 09/07/2011 

East Cape Not Given R1 000,00 Not Given 27/07/2011 

Midlands 

College 

Bonitas 

Not Given R10 456,00 Not Given 03/08/2011 

Medscheme 

Old Mutual Not Given R6 604,79 Not Given 05/07/2011 

Finance 

Imatu Not Given R290,07 Not Given 05/07/2011 

Kga-Life Not Given R1 742,40 Not Given 05/07/2011 

ABSA Bank Da Not Given R275,00 Not Given 05/07/2011 

Phillip Goetz Not Given R558,14 Not Given 08/07/2011 

Boomtown 

Not Given R5 385,95 Not Given 08/07/2011 

Srateg 

Salary Payment Not Given R180,00 Not Given 18/07/2011 


Head Office 

Salaris Betaling Not Given R6 193,92 Not Given 21/07/2011 

Keyhealth Not Given R13 853,00 Not Given 03/08/2011 

180


Juta Not Given R166,25 Not Given 19/08/2011 


Vodacom Not Given R318,73 Not Given 19/08/2011 


Carlson Wagolit Not Given R1 326,00 Not Given 10/08/2011 

Travel 

Metropolitan Life Not Given R7 643,03 Not Given 26/08/2011 


Head Office Not Given R4 309,27 Not Given 01/08/2011 

Multi Choice Not Given R576,72 Not Given 01/08/2011 

Nashua Mobile Not Given R4 024,40 Not Given 01/09/2011 

Nashua Mobile Not Given R4 024,40 Not Given 01/08/2011 

Salary Payment Not Given R1 688,08 Not Given 17/08/2011 






Freek Stolls Not Given R500,00 Not Given 26/08/2011 

Salaris Betaling Not Given R500,00 Not Given 26/08/2011 

Salary Payment Not Given R500,00 Not Given 26/08/2011 


Head office 

Multichoice Not Given R576,72 Not Given 30/08/2011 

M Maya Not Given R1 500,00 Not Given 31/08/2011 

Cheque 11108 Not Given R71,34 Not Given 03/09/2011 

The municipality is raising expenditure on the payments basis as opposed to the accrual basis. 

Due to the cash flow problems, this has resulted in days in payables extending to 105 days which 

resulted in unrecorded liabilities at year-end. Payable reconciliations are not being performed 

monthly and there is no process in place to accrue for services and goods received but not yet paid 

for as at year-end. 

Expenses and liabilities will be understated resulting in the misstatement of the Annual Financial 

Statements at year-end. 






Payable reconciliations should be performed for all suppliers on a monthly basis. The Expenditure 

clerk should reconcile the supplier invoices and statement to the amounts recorded per supplier in 

the payables sub-ledger and follow up and resolve any reconciling items timeously. The reconciling 

items should be substantiated by supporting documentation i.e. an unpresented cheque or an 

accrual raised due to not yet having received the invoice but having already received the goods or 

service. These reconciliations should be reviewed by the CFO and signed and dated as evidence 

of the review process. 

181






182


58. Trade and other payables - No supporting documentation for journals 

Audit finding 

Section 62 of the Municipal Finance Management Act, No 56 of 2003 (MFMA) states inter alia that 

the accounting officer of a municipality is responsible for managing the financial administration of 

the municipality, and must for this purpose take all reasonable steps to ensure: 





Section 74(1) of the MFMA states that the accounting officer must submit to the National Treasury, 

the provincial treasury, the department for local government in the province or the Auditor-General 

such information, returns, documents, explanations and motivations as may be prescribed or as 

may be required. Subsection (2) further states that if the accounting officer of a municipality is 

unable to comply with any of the responsibilities in terms of this Act, he or she must promptly report 

the inability, together with reasons, to the mayor and the provincial treasury. 

Supporting documentation could not be provided for the following journals: 

2010 year: 

Reference Date Description Amount 

Number 

B5/10/11 01/07/2010 2010 Leave pay provision R399 757.35 

B25/09/10 30/06/2011 Correction of bank account per June 2010 R517 800.72 

recon 

A2/09/10 01/07/2010 Opening balance 2007 written back R360 000.00 

B25/09/10 30/06/2011 Correction of bank account per June 2010 R148 896.67 

The factual limitation misstatement is R93 059.96 

2011 year: 

Reference Date Description Amount 

Number 

A110/10/11 30/06/2011 Correction of trade creditors due to 

R4 199 553.96 

SAMRAS syst 

68/10/11 30/06/2011 Wrongly cancelled payment in advance R119 272.00 

A40/10/11 30/06/2011 Wrong PY accruals reallocated to 

R717 220.48 

expenditure 


A93/10/11 30/06/2011 Correction of current year audit fees R70 996.00 




The factual limitation misstatement is R3 445 804,09 

183


The CFO does not review journals processed by the service providers to ensure that these 

transactions are valid, accurate and complete and substantiated by supporting documentation. The 

CFO is not taking responsibility for all entries processed to the general ledger and the compilation 

of the Annual Financial Statements. 

This would result in journals being processed to the general ledger that are not valid, accurate and 

complete. The misstatement amounts to R3 456 121.44. 






Management should review all entries processed to the general ledger, albeit by the consultants, to 

ensure that they are authorized, accurate and backed by valid supporting documentation. Such 

review and authorisation should be evidenced by signature or initial. Management must develop 

internal controls regarding appropriate filing standards to ensure that all the required supporting 

documentation is filed methodically. 

Management should ensure that all requested documentation is provided for audit purposes, 

timeously, to ensure compliance with the MFMA. 





184


PREDETERMINED OBJECTIVES 

59. Performance information - Non-compliance with MFMA section 72 

Audit finding 

Per section 72 (1) & (2) of the MFMA, the following is required: 

(1) The accounting officer of the municipality must by 25 January of each year, 

(a) Assess the performance of the municipality during the first half of the financial year, taking the 

following into account: 

(i) 

(ii) 

monthly statements referred to in section 71 for the first half of the financial year, 

municipality’s service delivery performance during the first half of the financial year and the 

service delivery targets and performance indicators set in the SDBIP 

(iii) past years annual report and progress on resolving problems identified in the annual report; 

and 

(b) submit a report on such assessment to the mayor of the municipality, the National Treasury 

and the relevant provincial treasury 

(2) The statement referred to in section 71(1) for the sixth month of a financial year may be 

incorporated into the report referred to in subsection (1) (b) of this section. 

The mid-year report was not submitted to National Treasury and relevant Provincial Treasury 

before 25 January 2011 as required by MFMA section 72 (1). 

The documents supporting the evidence that the municipality complied with section 72 (1) of the 

MFMA were not properly filed and easily retrievable for audit purposes. 

Non-compliance with the MFMA. 

This could lead to inefficiencies within the municipality as well as performance targets not properly 

monitored. 


Leadership 




The MFMA should be complied with at all times, therefore an assessment should be done and 

a report should be sent by 25 January 2011 to the mayor of the municipality, National treasury and 

relevant Provincial Treasury. 





185


60. Performance information - Key performance indicators and targets do not meet the 

relevant criteria 

Audit finding 

According to the Section 9 of the Municipal Planning and Performance Management Regulations a 

municipality must set key performance indicators, including input indicators, output indicators and 

outcome indicators, in respect of each of the development priorities and objectives referred to in 

section 26(c) of the Municipal Systems Act. A key performance indicator must be measurable, 

relevant, objective and precise. 

A key performance indicator will be regarded as WELL-DEFINED if it has a clear unambiguous 

definition, is defined so that data will be collected consistently and must be easy to understand and 

use. 

A key performance indicator will be regarded as VERIFIABLE if it is possible to validate the 

processes and systems that produce the indicator. 

Targets will be considered SPECIFIC if it is possible to validate the processes and systems that 

produce the indicator. 

Targets will be considered MEASURABLE if the required performance can be measured. 

Targets will be considered TIME - BOUND if the time period or deadline for delivery is specified. 

A sample of key performance indicators and targets included in the Integrated Development Plan 

were reviewed to determine if the indicators and targets meet the criteria as set by National 

Treasury in the Framework for Managing Performance Information. 

Several indicators and targets were identified that did not meet the set criteria. 

Details of the review were as follow: 

Key performance 

indicator 

Efficient Indigent Policy 

Accurate and correct 

billing system 

(i) Increase Property 

Rates charges 

(ii) Practical accounting 

Reorganise office space 

with customer 

orientation in mind, as 

well as effective admin 

(i)Upgrading of libraries 

(books and building) 

Target 

Identify all possible 

indigent cases 

No account 

complaints 

(i) 1. Correct billing of 

rates 

(ii) Monthly CCRC 

meetings 

2. Better collection of 

rates 60% - 100% 

Less community 

complaints regarding 

responses to their 

queries – Help desks 

in WM & SV 

Deliver extended 

library services 

Key 

performa 

nce 

indicator 

- Well 

defined 

Key 

performa 

nce 

indicator 

– 

verifiable 

Key 

performan 

ce 

indicator – 

relevance 

Target - 

Measurable 

Target 

Target - 

- Time 

Specific 

bound 

X X X 

X X X 

X X X X 

X 

X 

X 

X 

186

Implement a life skills i) Increased levels of 

and training programme competency among 

youth 

Expansion of Baviaans 

Youth Advisory Centre 

to Steytlerville and 

Baviaanskloof 

All residents must 

have access to all 

BYAC 

Investigate possibility to Meetings reaching 

give learners (Grade 7 – agreement with Dept. 

12) the opportunity to of Education to open 

develop hand skills such a school in 

Sakha Isizwe Program 

Upgrade Willowmore 

and Steytlerville halls 

Proper communication 

to community 

Access to recreational 

facilities by all 

inhabitants 

Willowmore 

i)Implement 

programs in WM, SV 

& BK 

Town Halls are 

customer friendly 

-Municipal 

newsletter 

- Area committees 

Upgrading of sports 

grounds 

i)Sportforums 

ii) Sport facilities 

Centres for youthAccess to BAYC in 

development and Wellall three areas. 

equipped computer 

centre and help desk 

Well equipped youthAccess to all training 

training centre & helpcourses for youth & 

desk 

adults 

Adjustment in schoolDept of Education to 

curriculum 

investigate 

Investigate the problem 

of homeless children 

Life & business skills 

programs and Develop 

& promote arts groups 

Ensure availability of 

ambulance through 

intersectoral planning 

meeting 

Ensure the availability of 

doctor and dentist 

through intersectoral 

meeting 

Establish HIV and AIDS 

Care Centre at 

Willowmore 

Facilitate the 

establishment of a 

satellite clinic in 


Social Development 

to make available a 

house for foster 

children 


X X X X 

X 

X 

X X X X 

X X X 

X X X X 

X X X 

X X X X 

X X X X 

X X X X X X 

X X X 

Better skilled people X X X X 

No complaints are 

received about 

unavailability of 

ambulances 

No complaints are 

received about 

unavailability of 

doctor or dentist 

Willowmore Hospital 

is able to dispense 

HIV/AIDS drugs 

A structure for clinic 

exists 

X X X X 

X X X 

X X X 

X X X X 

187 

X 

X


Provision of waiting 

rooms at clinics 

Expansion of current 

mortuary facilities at 

Willowmore Hospital 

Implement programs to 

take care of animal 

health 

Establishment of 

Thusong Centre in 

Steytlerville 

Establishment of 

Thusong Centre in 

Steytlerville 

IGR Forum 

Area Committees 

established 

Empowerment of 

SMME’s 

Provide services to 

SMME’s 

Establish business 

stalls, beehives and 

suitable venues for 

SMME to sell products 

Assist with the 

registration of local 

contractors / SMME’s as 

accredited service 

providers 

Create a data base of all 

Spaza shops and 

business owners in 

Baviaans 

Fruit trees for each 

household 

Waiting rooms are 

extended in clinics 

i)Better equipped 

mortuary 

ii) Possible mortuary 

services to 


Better looked after 

animals and control 

Government 

departments have 

office space 

Government 

departments have 

office space – 

Thusong Centre 

Better cooperation 

between all 

departments 

Better 

communication to all 

residents 

i) Provide training 

programmes 

ii) Assist with 

business 

plans 

iii) Marketing 

SMME’s are 

capacitated and 

thrive in Baviaans 

Physical structures 

are erected for 

SMME’s 

i)See to registration 

of SMME’s as 

service providers 

ii) Develop local 

labour website to 

advertise 

All business 

operating in 

Baviaans are 

registered 

Obtain trees from 

DWAF 

Regularly meetings 

Transport Forum 

with stakeholders 

Maintenance budget forProper roads for all 

town roads 

residents 

X X X X 

X X X X X 

X X X 

X X X X X X 

X X X X X X 

X X X X 

X X X 

X X X X 

X X X X 

X X X 

X X X 

X X X X 

X X X X X X 

X X X X 

X X X 

188

Augmentation of surfaceProject is 

water from 

implemented 

Erasmuskloof resulting in sufficient 

water supply in 

Steytlerville 

1) Received ROD 

2) Lobby for funds 

Upgrading of water 

provision new borehole 

& reticulation in 

Saaimanshoek 

Maintenance program 

for Telemetry Systems 

in Steytlerville and 

Willowmore 

Drill 3 x 300 m deep 

boreholes: Wanhoop 

Upgrading of Water 

Network at Wanhoop 

Investigate the 

installation of water flow 

meters for indigent 

households to prevent 

unaffordable water 

usage as well as the 

installation of area water 

flow meters in both 

Willowmore and 

Steytlerville 

Project is 

implemented 

resulting in sufficient 

water supply in 

Saaimanshoek 

Service Level 

Agreements entered 

into with service 

provider 

Completion of project 

with sufficient water 

supply to Willowmore 


with sufficient water 

supply to Willowmore 

Implement policy: 

repair leakages on 

private property 


X X X X 

X X X X 

X X X X 

X X X X X 

No complaints on faulty Faulty meter 

X X X X 

meters 

replacement 

Extension of sewerage Adequate sewerage X X X X X X 

ponds in Steytlerville capacity 

Investigate VIP toilet 

system in use in 

Fullarton & 

Saaimanshoek for 

upgrading 

Report to council X X X X X 

Investigate better 

management of 

dumping sites in 


Steytlerville as well as 

better personnel 

management for refuse 

removal 

Report to council on 

the investigation is 

tabled Implement 

management plans 

for dumping sites 

X 

X 

X 

X 

X 

X 

Investigate new housing Report to council on 

scheme: 50 houses for progress 

“Down” Willowmore and 

50 houses: farm 

labourers, Steytlerville 

X X X X 

189

Provide housing for 

needy people: 

Baviaanskloof & 

Fullarton 

Investigate transfer of 

Spoornet Houses 

(Willowmore & 

Fullarton) 

Private Sector initiated 

retirement Estate 

Housing development in 

Willowmore (300 units) 

[Atollo Holdings] 

Transfer of housing 

board houses to 

beneficiaries 

Upgrade internal 

electrical system (Old 

dorp – Willowmore) 

Electrification of the 373 

housing project and 

streetlights of area 

Electrification of 120 

housing units, 

Steytlerville 

Investigate 

electrification of 

Fullarton Primary school 

Investigate 

electrification of farm 

schools 

Replacement of Plessey 

with Conlog meters 

Investigate upgrading of 

gravel roads, 

Steytlerville & 

Willowmore with 

reference to the street 

priority list 


Private land X X X 

Report to council on 

the investigation is 

tabled 

Council legal 

processes are 

completed for 

scheme 

Transfer outstanding 

houses to 

beneficiaries which is 

currently in name of 

Municipality 

Unbroken electricity 

supply in the area 

All 373 houses are 

electrified 

All 120 housing units 

are electrified 

Investigation report is 

tabled to council 

Investigation report is 


Conlog electricity 

meters being used in 

all houses within 


New projects for SV 

& WM 

Investigate upgrading of Investigation report is 

Victoria Street tabled to council 

Upgrading of TR397 - Upgrading of road is 

Access to World complete 

Heritage Site 

X X X 

X X X X X 

X X X X X 

X X X X 

X X X 

X X X X X X 

X X X X X 

X 

X X X X 

X X X X X X 

X X X X X 

Investigate street bumpsImplement report X X X X 

and road signs 

Provision of water and Permanent supply of 

X X X 

upgrading of sport water to upgraded 

grounds: Steytlerville sport field 

Upgrade Willowmore & 

Steytlerville Town Halls 

Curtains for WM & 

SV town halls 

X X X X 

X 

190 

X 

X



Put up partitions 

Vuyolwethu hall 

TV Satellite stations TV broadcasting for 

for: 

all residents 

i) BK 

ii) SV 

iii) WM 

Investigate Fire 

Function for Baviaans 

Execute Fire 

Functions in 


Percentage of KPIs selected not meeting 

the criteria 

X X X X 

X X 

X X X 

64% 47% 39% 74% 55% 100% 

Key performance indicators are not clearly defined in the IDP and SDBIP during the planning 

processes. 

Non-compliance with the Municipal Planning and Performance Management Regulations. 

Performance indicators and targets that are not clear might lead to non-achievement of targets and 

disputes during performance evaluations. 


Leadership 




Management should confirm that development priorities / objectives are set in accordance with 

legislation. 

Key Performance Indicators should be: 

Relevant: The indicator must relate logically to an aspect of the institution’s mandate, and the 

realisation of goals and objectives and the indicator and target must relate to the development 

priorities/objectives. 

Well-defined: It must have a clear, unambiguous definition, it should be defined so that data will be 

collected consistently and it must be easy to understand and use. 

Verifiable: It must be possible to validate the processes and systems that produce the indicator. 

Targets should be: 

Specific: The nature and the required level of performance must be clearly defined. 

Measurable: The required performance can be measured. 

Time-bound: The time period or deadline for delivery should be specified. 

191






192


61. Performance information - Not all performance objectives contains budget amounts 

Audit finding 

Section 1 of the MFMA defines the SDBIP as: 

“a detailed plan approved by the mayor of a municipality in terms of section 53(1)(c)(ii) for 

implementing the municipality’s delivery of services and the execution of its annual budget and 

which must include (as part of the top-layer) the following: 

(a) projections for each month of- 

(i) revenue to be collected, by source; and 

(ii) operational and capital expenditure, by vote; 

(b) service delivery targets and performance indicators for each quarter”. 

Regulation 6 of the Municipal Planning and Performance Management Regulations, 2001 states 

that a municipality's integrated development plan must – 

(a) inform the municipality's annual budget that must be based on the development priorities and 

objectives referred to in section 26 (c) of the Act and the performance targets set by the 

municipality in terms of regulation 12; and 

(b) be used to prepare action plans for the implementation of strategies identified by the 

municipality. 

The MFMA Circular No. 13 provides guidance and assistance to municipalities in the preparation of 

the Service Delivery and Budget Implementation Plan (SDBIP) which is required by the Municipal 

Finance Management Act (MFMA). 

Circular No. 13 states that the SDBIP gives effect to the Integrated Development Plan (IDP) and 

budget of the municipality and will be possible if the IDP and budget are fully aligned with each 

other, as required by the MFMA. 

The budget gives effect to the strategic priorities of the municipality and is not a management or 

implementation plan. The SDBIP therefore serves as a “contract” between the administration, 

council and community expressing the goals and objectives set by the council as quantifiable 

outcomes that can be implemented by the administration over the next twelve months. This 

provides the basis for measuring performance in service delivery against end of year targets and 

implementing the budget. 

Upon performing the planning stage of predetermined objectives it was noted that development 

priorities with corresponding targets, as listed in the SDBIP for 2010/2011, do not have 

specific budgeted amounts allocated to them, but merely a vote reference, and a few development 

priorities have no budgeted amounts allocated to it. 

Refer below for details: 

a) There are no budget amounts allocated to following objectives, there is however a reference to 

a vote. 

Increase revenue base 

Utilise local skills in community to assist in projects 

Provision of recreational facilities 

Life Skills 

Effective programs for the health of animals in the Baviaans area 

Reduce distance between service and the community 

Facilitate SMME website access and utilisation. Assist with marketing, exposure of the 

SMME’s products / services 

High standard of roads 

Supply sustainable basic infrastructure to all inhabitants of Baviaans: Water 

193

Efficient accounting system for water usage 

Provide sanitation of an acceptable standard to all communities 

Improve refuse removal plans 

Eradicate all squatters and informal settlements in Baviaans 

Avoid power failures from the municipal supply network 

Electricity supply to all inhabitants of Baviaans by 2012 

Encourage efficient usage of municipal halls, building by community revenue 

Develop maintenance program for satellite stations 

Establish a Fire Function for Baviaans 


b) There was R 0 budgets allocated to the following objectives as per the SDBIP. 

Improve customer care and service delivery 

Promote education not only academic, but also practical work related learning. economic 

Remove poverty mentality 

Remove sense of helplessness 

Promote education (academic and technical) 

Security and safety of youth 

Investigate private public partnerships 

Lobby with district and province 

Promote home based care 

Better mortuary services 

Intergovernmental relationships 

Promote the services and or products of the SMME 

The provision of municipal business sites, premises for business 

Promote opportunity for local job creation 

Legalise legitimate spaza shops 

Households to grow their own food 

Provision of housing for middle and high income earners 

Enhance quality and standards of RDP housing 

There were not sufficient funds available to implement an automated system that will ensure that 

all targets in the SDBIP are specifically and automatically linked to the budget. 

It is not possible to verify completeness of the Budget or SDBIP in all aspects as the information 

cannot be clearly cross-referenced. Management may therefore not be able to monitor their 

expenditure effectively. 





Budgets should be aligned with the SDBIP/IDP to ensure the inclusion of all projects. 

The implementation of an automated system could assist in making such alignments. 

194






195


62. Performance information - Projects completed in the prior year that still shows as an 

objective in the IDP in the current year. 

Audit finding 

Regulation 12(1) of the Municipal Planning and Performance Management Regulations states that 

a municipality must, for each financial year, set performance targets for each of the key 

performance indicators set by it. 

(2) A performance target: set in terms of sub regulation (1) must- 

(a) be practical and realistic; 

(b) measure the efficiency, effectiveness, quality and impact of the performance of the 

municipality, administrative component, structure, body or person for whom a target has been 

set; 

(c) be commensurate with available resources; 

(d) be commensurate with the municipality's capacity; and 

(e) be consistent with the municipality's development priorities and objectives set out in its 

integrated development plan. 

Paragraph 3.3 of the Framework for Managing Program Performance Information states that 

performance targets should be relevant, i.e. the required performance is linked to the achievement 

of a goal. 

Upon inspection of the SDBIP it was noted that a significant part of the objectives stated in the 

SDBIP were completed in the previous financial year and did not relate to the current financial 

year. 

Refer to table below for key performance indicators already completed: 

Objectives 

Better mortuary services 

Legalise legitimate spaza shops 

Households to grow their own food 

Supply sustainable basic 

infrastructure to all inhabitants of 

Baviaans: Water 

Key performance indicators 

Expansion of current mortuary facilities at Willowmore 

Hospital 

Create a data base of all Spaza shops and business owners 

in Baviaans 

Fruit trees for each household 

Upgrading of water provision new borehole & reticulation in 

Saaimanshoek 

Drill 3 x 300 m deep boreholes: Wanhoop 

Upgrading of Water Network at Wanhoop 

Provide sanitation of an acceptable 

standard to all communities 

Provision of housing for middle and 

high income earners 

Extension of sewerage ponds in Steytlerville 

Investigate VIP toilet system in use in Fullarton & 

Saaimanshoek for upgrading 

Private Sector initiated retirement Estate Housing 

development in Willowmore (300 units) [Atollo Holdings] 

Avoid power failures from the 

municipal supply network 

Avoid power failures from the 

municipal supply network 

Upgrade internal electrical system (Old dorp – Willowmore) 

Upgrade internal electrical system (Old dorp – Willowmore) 

196

Electricity supply to all inhabitants of 

Baviaans by 2012 


Electrification of the 373 housing project and streetlights of 

area 

Electrification of 120 housing units, Steytlerville 

Investigate electrification of Fullarton Primary school 

Improve conditions of internal Investigate upgrading of Victoria Street 

streets and roads in Willowmore and 

Steytlerville 

Provision of water and upgrading of sport grounds: 

Steytlerville 

The IDP document is a 5-year planning document and management was not aware that completed 

projects should be removed from the IDP. 

Incorrect performance targets would be driven by the municipality which will result in a lack of 

service delivery. 


Leadership 




All projects on the SDBIP which relates to completed projects in the prior year should be removed 

from the SDBIP. 





197


63. Performance information - KPI's on the IDP do not correspond to the general KPI's 

required by MSA 

Audit finding 

Per section 43 (b) (2) of the MSA, the following is required: 

Key performance indicators set by a municipality must include any general key performance 

indicators prescribed in terms of subsection 1, to the extent that these indicators are applicable to 

the municipality concerned. 

It appears that the general key performance indicators per the IDP do not correspond to the 

general key performance indicators per sec. 43 reg. 10 of the MSA. 

KPI’s per sec 43.reg10 of MSA: 

The percentage of households with access to basic level of water, sanitation, electricity and solid 

waste removal 

The percentage of households earning less than R1 100 per month with access to free basic 

services. 

The percentage of a municipality’s capital budget actually spent on capital projects identified for a 

particular financial year in terms of the municipality’s IDP. 

The number of jobs created through the municipality’s local economic development initiatives 

including capital projects. 

The number of people from employment equity target groups employed in the three highest levels 

of management in compliance with a municipality has approved employment equity plan. 

The percentage of a municipality’s budget actually spent on implementing its workplace skills plan. 

Financial viability as expressed by ratios. 

These general KPI’s could not be matched to the IDP. 

The number of jobs created through the municipality’s local economic development initiatives 

including capital projects. 

Financial viability as expressed by ratios. 

The municipality received an IDP analyses and assessment Framework 2011 from the department 

for local government and traditional affairs which gives detail information with regards to key 

performance indicators in the IDP. This document did not include all the KPI's per section 43 

regulation 10 of the MSA. 

Non-compliance with MSA sec. 43 reg. 10. 

Non-inclusion of these general indicators will lead to non-achievement of these service delivery 

targets. 


Leadership 



198



We recommend that the KPI’s per the IDP should correspond to the general KPI’s per MSA sec. 43 

reg.10. 





199


64. Performance information - Non-compliance with MSA section 39 (a) & 40 

Audit finding 

MSA section 39 (a) requires that the executive committee/executive mayor/committee of 

councillors appointed by the municipal council perform the following: 

i) Manage the development of the municipality’s performance management system; 

MSA section 40 requires that the municipality should have mechanisms in place to monitor and 

review its PMS. 

Upon performing the planning procedures of the predetermined objectives we noted that 

the executive committee/executive mayor/committee of councillors appointed by the municipal 

council did not manage the development of the municipality’s performance management system 

and there in no mechanisms in place to ensure that the PMS is monitored and reviewed on a 

regular basis. 

The performance management policy was compiled during 2008 and not reviewed after that date. 

Management felt that it was not necessary to review and monitor their framework for performance 

management due to the fact that Price Waterhouse Coopers compiled the document in 2008 and 

there were no weaknesses in this document. 

Non-compliance with MSA section 39 (a) and 40. 

The performance management system could be old and outdated and this could lead to 

inefficiencies within the municipality. 


Leadership 




We recommend that the executive committee/executive mayor/committee of councillors appointed 

by the municipal council should manage the development of the municipality’s performance 

management system and ensure that adequate mechanisms should be implemented to ensure 

that the PMS is monitored and reviewed on a regular basis. 


Management agreed with the audit finding and will implement the recommendation. 



200


65. Performance information - Non-compliance with section 46 of the MSA 

Audit finding 

Section 46 of the MFMA states:- 

(1) Municipality must prepare for each financial year a performance report reflecting- 

(a) The performance of a municipality and each external service provider during that financial year 

(b) A comparison of the performance referred to in paragraph (a) with 

performances in the previous financial year; and 

targets set for and 

(c) 

Measures taken to improve performance 

Detail testing on predetermined objectives indicated that no measures were taken to improve 

performance and not supported by adequate and reliable corroborating evidence for targets not 

met in the annual performance report as required by section 46 of the Municipal Systems Act for 

the following key performance indicators: 


indicator 

Encourage the customer 

to pay for services. 

Accurate and correct 

billing system 

(i) Increase Property 

Rates charges 

(ii)Practical accounting 

1) Action plans to 

implement by-laws. 

2)Simplify & review bylaws 

3) Public awareness 

programmes 

Execution of Council 

Resolutions 

Reorganise office space 

with customer orientation 

in mind, as well as 

effective admin 

Target 

i) Payment rate of 100% 

Reported 

performance 

Payment rate of 890.06% 

ii) Reduction of the arrear 

accounts- Debtors payment 

rate 

No account complaints Complaints are under 10% 

(i) 1. Correct billing of rates 

(ii) Monthly CCRC meetings 

2. Better collection of rates 

60% - 100% 

i) Community abide to 

stipulations of by-laws 

ii) Update of by-laws 

iii) Programs 

No outstanding resolution 

implementation across all 

departments 

Less community complaints 

regarding responses to their 

queries – Help desks in WM 

& SV 

(i) CFO will do reconciliation: 

ii) Monthly meetings are held 

Done where necessary 

No need to updated any bylaws 

during 3rd quarter 

Done – November 2011 

Not done – STASSA experience 

problem to link to computers of mng 

Not in place – busy advertising to 

appoint employee 

Practical workable plans 

on which lines the 

municipality will develop 

on. 

Plans adopted by Council 

(Priority) 

(i) HR Strategy 

(ii) Implementation of Local 

Gov Turn Around Strategy 

Plan 

(i) Had workshops on draft HR 

Strategy 

(ii) Monthly reports to council 

201

(i)Branding & Advertising i) Implement branding / 

advertising for a better 

informed community 

(i)Upgrading of libraries 

(books and building) 

Implement a life skills and 

training programme 

Upgrade Willowmore and 

Steytlerville halls 

Proper communication to 

community 

Adjustment in school 

curriculum 

Investigate the problem of 

homeless children 

Life & business skills 

programs and Develop & 

promote arts groups 


ambulance through 

intersectoral planning 

meeting 

Establishment of Thusong 

Centre in Steytlerville 

Facilitate security 

consciousness road 

shows and workshops 

with community of 






IGR Forum 

Area Committees 

established 

Investigate Bakersdam for 

possible west gate to 


Deliver extended library 

services 

i) Increased levels of 

competency among youth 

Town Halls are customer 

friendly 

(i) Municipal newsletter 


i) Branding only 11/12. 

Advertising done 

Books ordered, computers bought, 

await connect with Cacadu for internet 

connection 

(i) See monthly reports of CS Dept 

Will be done 11/12 

(ii)Area committees 

Dept of Education to No progress from Dept of Education 

investigate 

Social Development to make No progress from Dept of Social 

available a house for foster Development 

children 

Better skilled people SEDA representative visited 

Willowmore and Steytlerville to 

assistant upcoming business owners 

No complaints are received Monitor complaint received at 

about unavailability of municipality on poor ambulance 

ambulances 

services 

Government departments 

have office space 

Lessen the crime rate in 



have office space 


have office space – Thusong 

Centre 

Better cooperation between 

all departments 

Better communication to all 

residents 

ii) Reasons for relapse in 

communities 

iii) Review liquor selling hours 

Investigation report is tabled 

to council 

Not done 

Not Done 

Not done 

Not done 

Not done 

Not done 

Not done 

Investigation done. No funding 

Investigate Sunrise and 

Sunset Tours 


to council 

Investigation done. No funding 

202

1)Investigate training for 

tour guides and 

guesthouse personnel 

i) Ongoing training 


i) Project completed 09/10 

ii) Project started 1/3/11 

ii) Establish craft shops in 

WM, SV, BK 

i) Investigate erection of 

craft shop for Baviaans 

Establish a soil committee A functional soil conservation 

according to the Soil committee is in existence 

Conservation Act 

committee 

Identification 

of Report tabled to council & 

conservation projects business plans are 

(alien plant removal) formulated 

Everyone wishing to Projects are functional & Not done 

participate must be given progress reports submitted 

a chance 

Area Based Plan and LAA Execution of ABP & LAA Not done 

(Situation relates to Down Discuss water supply to No funding 

Housing Project) 

private land with farmers 

Finance ordered metres. 

Investigate the installation 

of water flow meters for 

indigent households to 

prevent 

water usage 

unaffordable 

Drill 3 x 300 m deep 

boreholes: Wanhoop 

Investigate the utilisation 

of backwash water and 

upgrading of waterworks: 

Wanhoop 

Investigate water supply 

for town development 

(Aftreeoord) 

Investigate the installation 

of water flow meters for 

indigent households to 

prevent unaffordable 

water usage as well as 

the installation of area 

water flow meters in both 


Steytlerville 

No complaints on faulty 

meters 

Finalise water services 

development plan 

Conclude legal contracts 

with users tapping on the 

municipal line 

Bucket Eradication 

Steytlerville 

(i) Need funding for this 

project. 

(ii)Report tabled to council on 

investigation. 

(iii) Ensure availability of 

water flow meters 

Completion of project with 

sufficient water supply to 

Willowmore 

i) Investigation is complete & 

report tabled to council 

ii)Implement recommendation 

Investigation is complete & 

report tabled to council 

Implement policy: repair 

leakages on private property 

Faulty meter replacement 

Water Services Development 

Plan being adopted by 

council 

Signed contracts with water 

users tapping on line 

Eradicate 37 buckets in 

Steytlerville 

Project of Dept of Agriculture 

responsible for establishment of soil 

BM will assist department as from 

1/7/11 through EPWP programme 

Certificate received 

iii) Investigation done – report to 

council 

iv) ii) Funds required 

SLA to be signed with 

Require funds for flow meters. 

Repair leakages as complaints are 

received 

Ongoing – Assistance of help desk 

Not done 

WM contracts outstanding 

Not done yet 

203


Investigate new housing 

scheme: 50 houses for 

“Down” Willowmore and 

50 houses: farm 

labourers, Steytlerville 

Provide housing for needy 

people: Baviaanskloof & 

Fullarton 

373 Housing Project 

Willowmore 

(ii) CDM to sign off 

project 

503 Housing project 

Steytlerville 

Investigate transfer of 

Spoornet Houses 

(Willowmore & Fullarton) 

Transfer of housing board 

houses to beneficiaries 

Investigate unoccupied 

houses for possible reallocation 

a)Upgrade of old electrical 

network in Steytlerville 

b)Implement alternative 

energy resources 

Investigate electrification 

of the rest of 503 housing 

Steytlerville (streetlights) 

[Ramaphosa] 

Investigate electrification 

of farm schools 

Investigate electricity 

supply to 30 households 

in Fullarton 

Replacement of Plessey 

with Conlog meters 

Provision of another prepaid 

electricity vendor 

point in Willowmore 


cement road between 

Willowmore & Steytlerville 


Willowmore swimming 

pool 

Upgrade Willowmore & 

Steytlerville Town Halls 

Report to council on progress 

Private land Private land – Project cannot be 

implemented 

373 housing of high standard 

– happy letters 

(i) Completion of the project 

(ii)Rectification of roofs 

Report to council on the 

investigation is tabled 

Transfer outstanding houses 

to beneficiaries which is 

currently in name of 


Report to council on the 

investigation 

a)Implement project 

b)i) Solar systems to RDP 

houses 

c)Solar farms on 

commonages 

(i) Investigation report is 


(ii) Implement high mast 

lighting 


to council 


to council 

Conlog electricity meters 

being used in all houses 

within Baviaans 

Two electricity vending points 

exist in Willowmore 

The road is safer & users are 

satisfied 

Ongoing upgrading of 

shoulders 

A clear convincing business 

plan is submitted to possible 

funders 

Curtains for WM & SV town 

halls 

Not done 

363 roofs repaired 

Awaiting response from Spoornet 

7 Outstanding in WM 

Outstanding 

Contractor appointed 

b) SV – Completed, WM 215 

c) Not done 

Busy with preparation of tender 

documents 

Outstanding 

Outstanding 

Ongoing 

Tender done for 2nd vendor 

Report sent to Premier of EC 

Not done – No funding 

Not done – problem with tender 

process. 

204


Vuyolwethu hall 

Eye test centre for 

Willowmore 

Percentage of targets 

tested not meeting the 

relevant criteria 

Put up partitions 

Upgrade old bakery building 

in SV 


No funding 

No funds 

100% 

In addition to this we verified that there is no comparison of the performance with targets set for 

and performances in the previous financial year in the performance report for the current financial 

year. 

Management was not trained sufficiently to ensure that measures taken to improve performance 

of targets not met and the comparison of the performance with targets set for and performances in 

the previous financial year do form part of the performance report. 

Non-compliance with section 46 of the Municipal Systems Act. 


Leadership 




Management should ensure that the format of the annual performance report is of such a nature 

that it includes measures taken to improve performance for targets not met and there should be a 

comparison of performance targets set and performances in the previous financial year. This would 

ensure that the Municipality complies with section 46 of the Municipal Systems Act. 





205


66. Performance information - Inaccurate, invalid and incomplete reported information 

Audit finding 

MFMA section 8, regulation 62 (c) requires the accounting officer of the municipality is responsible 

for managing the financial administration of the entity, and must for this purpose take all 

reasonable steps to ensure that the entity has and maintains effective, efficient and transparent 

systems of financial risk and risk management and internal control. 

Specific controls should be in place to ensure that performance information reported on are 

accurate, valid and complete. 

Detail testing on performance information indicated significant variances on the audited 

performance targets and reported targets in the performance report. 

The indicators listed below are disagreement misstatements and individual materially misstated. 


indicator 

Encourage 

customers to pay for 

services 

Target Reported figure Audited figure 

Payment rate of 

100% and reduction 

of arrears accounts 

Payment rate of 

890.06% 

Recalculation 

indicated a payment 

rate of 63.15%. 

Efficient 

policy 

indigent 

Valuation of property 

including agricultural 

land 

Investigate the 

installation of water 

flow meters for 

indigent households 

to 

prevent 

unaffordable water 

usage 

Identify all indigent 

cases 

Correct accounts 

sent out and account 

holders charged as 

zoned 


water flow meters 

60% of households 

are indigent 

Done 

Finance 

metres 

ordered 

Significant limitation 

misstatements 

identified due to 

indigent application 

form not provided for 

employee number 

660, 790, 1189, 1329 

and 2010 

Recalculation 

indicated that there 

were variances 

on 6.7% of the 

accounts tested. 

Variances were 

identified on account 

numbers 14126406, 

31551007, 

33115784 and 

31654007. 

Verified through 

inspection of invoice 

DEL0094, dated 

2011/05/26 that 100 

metres were ordered. 

206


Upgrade of old 

electrical network in 

Steytlerville 

Replacement of 

Plessey with conlog 

metres 

Implement project Contractor appointed Physical inspection 

indicated that the 

contractor started 

replacing the poles, 

rectified all 

clearances between 

conductors and 

refurbished mini substations. 

Expenditure 

incurred up to yearend 

amounted to 

R876 978.22 per the 

June 

Bulk 

Infrastructure 

monthly report. 

Conlog electricity Ongoing Physical verification 

meters being used in 

indicated that 

all houses within 

Plessey metres were 


replaced with Conlog 

metres within 2.13% 

of all houses in the 

Baviaans area in the 

current financial 

year. 

503 Housing project 

Steytlerville 


and rectification of 

roofs. 

In addition to this we 

could not identify 

sufficient internal 

controls for the 

reporting of accurate, 

valid and complete 

performance 

targets for the 

replacement of 

Plessey with Conlog 

meters. 

363 roofs repaired Physical verification 

indicated that 391 

roofs were repaired. 

Management overlooked the fact that specific controls should be in place to ensure that reported 

performance targets are accurate, valid and complete. 

Inaccurate, incomplete and invalid information reported in the performance report. This could lead 

to inefficiencies within the municipality as well as performance targets not properly monitored. 





207



Management should verify that all information reported in the Performance report is accurate and 

complete. 

Management should verify that portfolios of evidence files are updated continuously with 

supporting documentation covering all information reported in the Performance Highlights report to 

ensure the completeness, accuracy and validity of reported information. 

The annual performance report should be amended for the deficiencies mentioned in the finding. 





208

67. Performance information - Incomplete list of account complaints 

Audit finding 






The audit team requested a list of all account complaints for the current financial year in RFI 46. 

The list of account complaints received amounted to a total of 23 account complaints in the current 

financial year. Further investigation indicated that the list of account complaints received is not 

complete due to the following: 

The database was only implemented in October 2010. 

The Help Desk Administrator indicated that the Municipality receive approximately 2 to 3 account 

complaints on a daily basis. 

A significant amount of the account complaints were logged with the Principal Clerk Income and no 

register is kept of this account complaints. 

No register of account complaints was kept in the current financial year, this is due to the fact that 

the Help Desk Administrator was by passed and a significant portion of the complaints were 

resolved with the Principal Clerk Income who is responsible for the accounts. 

Validity, completeness and accuracy of reported performance information could not 

established. 

be 

The actual performance as reported in the Performance Highlights could not be accurate and 

complete. 






Internal controls should be implemented to ensure that all account complaints are logged at the 

Help Desk Administrator and not at the Principal Income Clerk. The Help Desk Administrator 

should maintain a register of all account complaints, the register of account complaints should be 

reconciled to the reported account complaints in the performance report. The Manager Community 

Services should review the process and sign as evidence of review. 





209


68. Performance information - Non-compliance with section 72(1) of the MFMA 

Audit finding 

Section 72(1) of the MFMA states that the past years annual report and progress on resolving 

problems identified in the annual report should be taken into account when the accounting officer 

of the municipality assess the performance of the municipality by 25 January of each year. 

Based on the audit procedures performed we could not obtain clear evidence that the prior year's 

annual report was taken into account when the accounting officer of the municipality assessed the 

performance of the municipality by 25 January. 

The annual report was not finalised before the drafting of the adjustment budget. 

Non-compliance with section 72(1) of the MFMA. 



Review compliance and monitor applicable laws and regulations. 


Management should ensure that the past year's annual report and progress on resolving problems 

identified in the annual report are taken into account when the accounting officer compile the 

adjustment budget. 





210


PROVISIONS 

69. Provisions - Provision for landfill site valuation 

Audit finding 

GRAP 19 requires that a provision shall be recognised when: 

(a) An entity has a present obligation (legal or constructive) as a result of a past event. 

(b) It is probable that an outflow of resources embodying economic benefits or service potential 

will be required to settle the obligation. 

(c) A reliable estimate can be made of the amount of the obligation. 

Measurement 

49. The amount recognised as a provision shall be the best estimate of the expenditure required to 

settle the present obligation at the reporting date. 

58. Where the effect of the time value of money is material, the amount of a provision shall be the 

present value of the expenditures expected to be required to settle the obligation. 

59. Because of the time value of money, provisions relating to cash outflows that arise soon after 

the reporting date are more onerous than those where cash outflows of the same amount arise 

later. 

Provisions are therefore discounted, where the effect is material. 

60. The discount rate (or rates) shall be a pre -tax rate (or rates) that reflect(s) current market 

assessments of the time value of money and the risks specific to the liability. The discount 

rate shall not reflect risks for which future cash flow estimates have been adjusted. 

Directive 4 

92. Where provisions, contingent liabilities and contingent assets are acquired through a transfer 

of functions, the entity is not required to measure those provisions, contingent liabilities and 

contingent assets for a period of three years from the effective date of the effective date of 

the Standard or the transfer, whichever is later, subject to the provisions in paragraphs .93 

and .94E below. 

94E 

While entities are not required to recognise provisions (which form part of the cost of an 

asset) in their financial statements as a result of applying the transitional provisions in other 

Standards of GRAP, entities are required to apply the disclosure requirements about the 

provisions related to those assets in accordance with the Standard of GRAP on Provisions, 

Contingent Liabilities and Contingent Assets. 

Upon inspection of the prior year annual financial statements and discussion with the CFO we 

verified that the municipality did not elect to apply the transitional provisions in directive 4 par 

92 which does not require a municipality to measure the provision for landfill site. The 

municipality incorrectly measured their provision for landfill site at a zero value as they did not elect 

to apply par 92 in directive 4 in the prior year and upon inspection of the current year annual 

financial statements it was verified that the provision for landfill site was not measured at a present 

value as at year end as required by GRAP 19. 

Management did not appoint an expert to do a present value calculation on the provision for landfill 

site and the prior year calculation was concluded as being inaccurate. 

The annual financial statements completeness and valuation on the provision for landfill site is 

misstated. 

211







The provision should be measured to reflect the present value using appropriate inputs, 

assumptions and discount rate. This calculation should be performed by an independent expert 

who has adequate qualifications and experience in this field. The estimations and assumptions 

applied by the expert in the calculation should be accurate and verifiable against valid supporting 





Management response is noted, however, this matter will remain for follow up next audit. This 

results in a scope limitation which will be included in the audit report. 

212

70. Provisions - Inaccurate provision for leave pay 

Audit finding 


Section 21 of the Basic Conditions of the Employment Act requires that an employer must pay an 

employee leave pay at least equivalent to the remuneration that the employee would have received 

for working for a period equal to the period of annual leave accumulated. 






21. In rare cases, it is not clear whether there is a present obligation. In these cases, a past event 

is deemed to give rise to a present obligation if, taking account of all available evidence, it is 

more likely than not that a present obligation exists at the reporting date. 

24. Financial statements deal with the financial position of an entity at the end of its reporting 

period and not its possible position in the future. Therefore, no provision is recognised for 

costs that need to be incurred to continue an entity’s ongoing activities in the future. The only 

liabilities recognised in an entity’s statement of financial position are those that exist at the 

reporting date. 

Detail testing on the provision for leave pay indicated that the audited leave taken for numerous 

employees does not correspond to the leave per the accounting system for both 2009/2010 and 

2010/2011 financial year. Refer to details below: 

2009/2010 financial year 

Employee 

number 

Name 

Leave taken per 

system 

Leave taken per 

authorised leave 

forms 

Variance 

40 Lammert 59.00 38.00 21.00 

50 Strydom 0.00 9.00 -9.00 

86 Mapu 35.00 25.00 10.00 

107 Erasmus 32.00 30.00 2.00 

116 Larens 29.00 27.00 2.00 

127 Mnyele 22.00 18.00 4.00 

131 Wildschut 8.00 3.00 5.00 


Employee 

number Name 

Leave taken 

per system 

Leave taken 

per authorised 

leave forms Variance 

8 Nazima 33 31 2.00 

9 Metembo 37 23 14.00 

10 Davids 21 16 5.00 

17 Witbooi 28 23 5.00 

49 Nappis 25 18 7.00 

67 Samson 48 47 1.00 

70 Japhta 26 5 21.00 

213


86 Mapu 39 34 5.00 

98 Samuels 12 11 1.00 

107 Erasmus 32 30 2.00 

116 Larens 19 17 2.00 

127 Mnyele 28 19 9.00 

In addition to this we verified that the basic salary used for the 2009/2010 calculation does not 

correspond to the basic salary for 30 June 2010 for the employees. The approved budget for the 

2010/2011 financial year was used in the calculation and not the basic salary on 30 June 2010. 

The incorrect leave days recorded and the incorrect salary used resulted in a projected 

overstatement of R142 829 for the 2009/2010 financial year and projected understatement of R65 

648 for the 2010/2011 financial year. 

The Municipality used a system generated report for the calculation for provision for leave pay with 

regards to leave days taken and not the leave register with the attached authorised leave forms 

which would be a fair reflection of leave days taken. The incorrect rate was used for the 

recalculation of the 2009/2010 balance as GRAP 19 was not accurately applied by the 

Municipality. 

The provision for leave pay balance for the 2009/2010 and 2010/2011 is misstated. 





The Municipality should use the current financial year's basic salary as at 30 June 2011and the 

prior year's basic salary as at 30 June 2010 to calculate the Provision for Leave Pay as the present 

obligation is as at 30 June 2011 and 30 June 2010. 

All the authorised leave forms should be reconciled to the leave captured on the system to ensure 

that leave taken on the system is accurate and corresponds to the authorised leave forms. The 

Corporate Services Manager should review the process. 





214

71. Provisions - IAS 19 treatment on post employment benefits 

Audit finding 

IAS 19 par 7 states: 


Defined contribution plans are post-employment benefit plans under which an entity pays fixed 

contributions into a separate entity (a fund) and will have no legal or constructive obligation to pay 

further contributions if the fund does not hold sufficient assets to pay all employee benefits relating 

to employee service in the current and prior periods. 

Defined benefit plans are post-employment benefit plans other than defined contribution plans. 

We could not obtain the agreements with the different pension funds for the contributions with 

regards to post employment benefits. As a result we could not determine whether the monthly 

contributions to pension funds meet the definition of defined contribution plan or a defined benefit 

plan. The Municipality will have a constructive obligation towards the employees where the 

contributions meet the definition of a defined benefit plan in terms of IAS 19. 

The Municipality does not have a process in place to file documentation in a structured methodical 

manner. 

Non-compliance with IAS 19 and possible understatement of post employment benefit liability. 






The Municipality should implement a process of proper record keeping. This will ensure the 

agreements could be evaluated in terms of IAS 19. If the agreement meets the definition of a 

defined benefit plan, the Municipality should raise a possible liability at year-end. If the agreement 

meets the definition of a defined contribution plan, the Municipality should disclose the 

contributions as expenditure in the Annual Financial Statements. 





215


RECEIVABLES 

72. Trade and other receivables - No supporting documentation for provision for doubtful 

debts 

Audit finding 

According to GRAP 104: 

57 An entity shall assess at the end of each reporting period whether there is any objective 

evidence that a financial asset or group of financial assets is impaired. If any such evidence 

exists, the entity shall apply paragraph 61 to 63 (for financial assets carried at amortised cost), 

and paragraph 64 (for financial assets carried at cost) or paragraph 67 (for available -for-sale 

financial assets) to determine the amount of any impairment loss. 

58 A financial asset or a group of financial assets is impaired and impairment losses are incurred 

if, and only if, there is objective evidence of impairment as a result of one or more events that 

occurred after the initial recognition of the asset (a 'loss event') and that loss event (or events) 

has an impact on the estimated future cash flows of the financial asset or group of financial 

assets that can be reliably estimated. It may not be possible to identify a single, discrete event 

that caused the impairment. Rather the combined effect of several events may have caused 

the impairment. Losses expected as a result of future events, no matter how likely, are not 

recognised. Objective evidence that a financial asset or group of assets is impaired includes 

observable data that comes to the attention of the holder of the asset about the following loss 

events: 

1. (a) significant financial difficulty of the issuer or obligor; 

2. (b) a breach of contract, such as a default or delinquency in interest or principal 

payments; 

3. (c) the lender, for economic or legal reasons relating to the borrower's financial difficulty, 

granting to the borrower a concession that the lender would not otherwise consider; 

4. (d) it is probable that the borrower will enter sequestration or other financial 

reorganisation; 

5. (e) the disappearance of an active market for that financial asset because of financial 

difficulties; or 

6. (f) observable data indicating that there is a measurable decrease in the estimated future 

cash flows from a group of financial assets since the initial recognition of those assets, 

although the decrease cannot yet be identified with the individual financial assets in the 

group, including: 

(i) adverse changes in the payment status of borrowers in the group (eg an increased 

number of delayed payments); or 

(ii) national or local economic conditions that correlate with defaults on the assets in the 

group (eg an increase in the unemployment rate in the geographical area of the borrowers, 

or adverse changes in industry conditions that affect the borrowers in the group). 

62 An entity first assesses whether objective evidence of impairment exists individually for 

financial assets that are individually significant, and individually or collectively for financial 

assets that are not individually significant (see paragraph .58). If an entity determines that 

no objective evidence of impairment exists for an individually assessed financial asset, 

whether significant or not, it includes the asset in a group of financial assets with similar 

credit risk characteristics and collectively assesses them for impairment. Assets that are 

individually assessed for impairment and for which an impairment loss is or continues to be 

recognised are not included in a collective assessment of impairment. 

216

GRAP 104 Application Guide 

Impairment and uncollectibility of financial assets 

Financial assets carried at amortised cost (Paragraphs .61 to .63) 


AG120. Impairment of a financial asset carried at amortised cost is measured using the 

financial instrument’s original effective interest rate because discounting at the current market 

rate of interest would, in effect, impose fair value measurement on financial assets that are 

otherwise measured at amortised cost. If the terms of a loan or a receivable are renegotiated or 

otherwise modified because of financial difficulties of the borrower or issuer, impairment is 

measured using the original effective interest rate before the modification of terms. If a loan or 

receivable has a variable interest rate, the discount rate for measuring any impairment loss 

under paragraph .61 is the current effective interest rate(s) determined under the contract. 

As a practical expedient, a creditor may measure impairment of a financial asset carried at 

amortised cost on the basis of a financial instrument’s fair value using an observable market 

price. The calculation of the present value of the estimated future cash flows of a collateralised 

financial asset reflects the cash flows that may result from foreclosure less costs for obtaining 

and selling the collateral, except if management does not intend to call up the collateral held. 

For example, an entity may have collateral for debts owing to it, but may choose not to use the 

collateral if it is likely to cause economic hardship. Where management’s intention is not to call 

up collateral held it is not included in the estimated future cash flows of the asset. 

AG121. The process for estimating impairment considers all credit exposures, not only hose of 

low credit quality. For example, if an entity uses an internal credit grading system it considers 

all credit grades, not only those reflecting a severe credit deterioration. 

AG122. The process for estimating the amount of an impairment loss may result either in a 

single amount or in a range of possible amounts. In the latter case, the entity recognises an 

impairment loss equal to the best estimate within the range (the Standard of GRAP on 

Provisions, Contingent Liabilities and Contingent Assets discusses principles in relation to a 

‘range of outcomes’), taking into account all relevant information available before the financial 

statements are issued about conditions existing at the end of the reporting period. 

AG123. For the purpose of a collective evaluation of impairment, financial assets are grouped 

on the basis of similar credit risk characteristics that are indicative of the debtors’ ability to pay 

all amounts due according to the contractual terms (for example, on the basis of a credit risk 

evaluation or grading process that considers asset type, industry, geographical location, 

collateral type, past-due status and other relevant factors). The characteristics chosen are 

relevant to the estimation of future cash flows for groups of such assets by being indicative of 

the debtors’ ability to pay all amounts due according to the contractual terms of the assets 

being evaluated. However, loss probabilities and other loss statistics differ at a group level 

between 

(a) assets that have been individually evaluated for impairment and found not to be impaired 

and 

(b) assets that have not been individually evaluated for impairment, with the result that a 

different amount of impairment may be required. 

If an entity does not have a group of assets with similar risk characteristics, it does not make 

the additional assessment. 

AG124. Impairment losses recognised on a group basis represent an interim step pending the 

identification of impairment losses on individual assets in the group of financial assets that are 

collectively assessed for impairment. As soon as information is available that specifically 

identifies losses on individually impaired assets in a group, those assets are removed from the 

group. 

217


AG125. Future cash flows in a group of financial assets that are collectively evaluated for 

impairment are estimated on the basis of historical loss experience for assets with credit risk 

characteristics similar to those in the group. Entities that have no entity specific loss experience 

or insufficient experience, use peer group experience for comparable groups of financial 

assets. Historical loss experience is adjusted on the basis of current observable data to reflect 

the effects of current conditions that did not affect the period on which the historical loss 

experience is based and to remove the effects of conditions in the historical period that do not 

exist currently. Estimates of changes in future cash flows reflect and are directionally consistent 

with changes in related observable data from period to period (such as changes in 

unemployment rates, inflation, property prices, commodity prices, payment status or other 

factors methodology and assumptions used or estimating future cash flows are reviewed 

regularly to reduce any differences between loss estimates and actual loss experience. 

AG126. As an example of applying paragraph AG125. An entity may determine, on the basis of 

historical experience, that one of the main causes of default on consumer debtors is the death 

of the borrower. The entity may observe that the death rate is unchanged from one year to the 

next. Nevertheless, some of the borrowers in the entity’s group of consumer debtors may have 

died in that year, indicating that an impairment loss has occurred on those loans even if, at the 

year-end, the entity is not yet aware which specific borrowers have died. It would be 

appropriate for an impairment loss to be recognised for these ‘incurred but not reported’ losses. 

It would not be appropriate to recognise an impairment loss for deaths that are expected to 

occur in a future period, however, since the necessary loss event (the death of the borrower) 

has not yet occurred. 

AG127. When using historical loss rates in estimating future cash flows, it is important that 

information about historical loss rates is applied to groups that are defined in a manner 

consistent with the groups for which the historical loss rates were observed. Therefore, the 

method used should enable each group to be associated with information about past loss 

experience in groups of assets with similar credit risk characteristics and relevant observable 

data that reflect current conditions. 

AG128. Formula-based approaches or statistical methods may be used to determine 

impairment losses in a group of financial assets (e.g. for smaller balance loans or receivables) 

as long as they are consistent with the requirements in paragraphs .61 – .63 and AG124. – 

AG128. Any model used would incorporate the effect of the time value of money, consider the 

cash flows for all of the remaining life of an asset (not only the next year), consider the age of 

the loans within the portfolio and not give rise to an impairment loss on initial recognition of a 

financial asset. 

We were unable to obtain evidence to vouch the inputs and assumptions used by the Municipality 

to calculate the provision for doubtful debts. Therefore we were unable to audit the amount of 

R901 411 as per the Annual Financial Statements. 

The Municipal Officials did not take responsibility and ownership for work performed by service 

providers to ensure that the entries into the General Ledger are authorised and substantiated by 

valid supporting documentation. 

Provision for doubtful debts and Trade receivables could be misstated. 





218



The Municipality must calculate the provision for bad debts according to the GRAP standards 

based on the credit risk profiles of debtors. The Municipality’s Officials must take ownership and 

responsibility of the work performed by the service provider. 





219

73. Trade and other receivables - No supporting documents for journals 

Audit finding 






During the testing of journals relating to trade and other receivables, no supporting documentation 

could be obtained for the following journals: 

Date Ref Description Amount 

01-Nov-10 6 5904 

Journals 

B2010110100154924THANDI 0028 (110.12) 

05-Aug-10 6 1 

Journals 

B2010080500160258JENNIFER 0000 (1,004.62) 

10-Aug-10 6 1 

Journals 

B2010081000095801JENNIFER 0000 (976.59) 

17-Aug-10 6 1 

Journals 

B2010081700082619JENNIFER 0001 (465.94) 

27-Aug-10 6 901 

Journals 

B2010082700091809JACKIE 0045 4,059.62 

17-Nov-10 6 2 

Journals 

B2010111700091450JENNIFER 0004 (330.00) 

17-Nov-10 6 1 

Journals 

B2010111700095738JENNIFER 0004 (494.70) 

06-Jan-11 6 5912 

Journals 

B2011010600143058THANDI 0029 (21.49) 

10-Mar-11 6 ERF923 

Journals 

B2011031000134656JACKIE 0049 495.40 

02-Aug-10 6 1 

Journals 

B2010080200123426JENNIFER 0000 847.15 

19-Aug-10 6 1 

Journals 

B2010081900103339JENNIFER 0001 (1,225.45) 

29-Sep-10 6 1 

Journals 

B2010092900120519JACKIE 0046 (720.00) 

05-Nov-10 6 1 

Journals 

B2010110500103516JENNIFER 0003 3,630.00 

11-May-11 6 59 

Journals 

B2011051100120109JENNIFER 0010 (2,178.83) 

09-Jul-10 6 1 

Journals 

B2010070900140712THANDI 0027 22.28 

03-Sep-10 6 5858 

Journals 

B2010090300082650THANDI 0028 (0.67) 

30-Jun-11 6 55/10/11 Wireless back bone wrongly allocated (263,157.89) 

30-Jun-11 6 A40/10/11 Wrong PY accruals reallocated to 

14,151.09 

expenditure 201 

Journals 

13-Jul-10 6 5814 B2010071300133533THANDI 0027 73,212.29 

05-Nov-10 6 1 

Journals 

B2010110500110509JACKIE 0047 (15,424.93) 

08-Nov-10 6 1 

Journals 

B2010110800071838JACKIE 0047 (28,236.70) 

08-Nov-10 6 1 

Journals 

B2010110800084912JACKIE 0047 (47,166.75) 

220


Date Ref Description Amount 

27-Jan-11 6 24 

Journals 

B2011012700154235JENNIFER 0006 10,331.61 

28-Jan-11 6 100 

Journals 

B2011012800101518JENNIFER 0006 11,761.77 

30-Jun-11 6 60/10/11 

Wrongly cancelled payment 

in advance 29,535.45 

05-Nov-10 6 1 

Journals 

B2010110500110509JACKIE 0047 15,424.93 

08-Nov-10 6 1 

Journals 

B2010110800071838JACKIE 0047 28,236.70 

08-Nov-10 6 1 

Journals 

B2010110800084912JACKIE 0047 47,166.75 

28-Jan-11 6 100 

Journals 

B2011012800101518JENNIFER 0006 (11,761.77) 

30-Jun-11 6 60/10/11 


in advance (97,823.61) 

30-Jun-11 6 68/10/11 



30-Jun-11 6 60/10/11 


in advance (38,190.96) 

30-Jun-11 6 60/10/11 



30-Jun-11 6 57/10/11 

Reversal of fair value 

adjustment 3062011 70,370.68 

The extrapolated limitation misstatement is R339 174 87, an overstatement of trade and other 

receivables. 

The Municipality do not keep proper records of the financial year's documents and do not have a 

proper filing system for easy access to documents. The Municipality does not review journals 

processed by the service providers to ensure that these transactions are valid, accurate and 

complete and substantiated by supporting documentation. 

Overstatement of trade and other receivables by R339 174 87. 




accurate information is accessible and available to support financial and performance reporting 


Implement proper record keeping to ensure supporting documentation is in maintained. The 

Municipality should take responsibility and ownership of all work performed by the service 

providers. 





221


74. Trade and other receivables - Existence of trade receivables 

Audit finding 





We could not verify the existence of a debtor (16121304) as there were no subsequent payments 

or services charges to this debtor. The extrapolated limitation misstatement is R419 876.14. 

The Municipality does not review and reconcile transactions processed to the general ledger for 

appropriate allocation, validity and accuracy. 

Trade and other receivables are overstated by R419 876.14. 






The CFO should review the general ledger and perform reconciliations on a monthly basis to 

ensure the validity, accuracy and completeness of transactions. 





222


RESERVES 

75. Accumulated surplus - Opening balance of 2009 on the statement of changes in net 

assets misstated 

Audit finding 





control.” 

The opening balance on the Statement of Changes in Net Assets in the Annual Financial 

Statements reflects an amount of R19 356 580, however the prior year Annual Financial 

Statements reflects a closing balance for 2008 of R18 243 832. The difference of R1 112 748 could 

not be substantiated with valid supporting documentation. Therefore the disclosure on the annual 

financial statements is incorrect. RFI number 44 dated 13/09/2011 was issued in order to request 

the information substantiating the difference, however the Municipality was unable to provide 

support. 

The CFO does not take ownership and responsibility for the transactions processed into the 

general ledger and compilation of the Annual Financial Statements. 

This is a limitation of scope on the audit and will result in the Annual Financial Statements being 

materially misstated. 


Financial And Performance Management 




The CFO should take responsibility for the general ledger and compilation of the Annual Financial 

Statements. Auditors should be supplied with information within 48 hours of issuing the RFI. 





223


76. Accumulated surplus - Opening balance of 2011 on the statement of changes in net 

assets misstated 

Audit finding 





The opening balance for 2011 on the Statement of Changes in Net Assets in the Annual Financial 

Statements reflects an amount of R 23 452 374 , however the prior year Annual Financial 

Statements reflects a closing balance for 2010 of R 22 167 642. For the difference of R1 284 728 

an amount of R114 084 could not be substantiated with valid supporting documentation. 

The Municipality does not take ownership and responsibility for the transactions processed into the 

general ledger and compilation of the Annual Financial Statements. 

This is a limitation of scope on the audit and will result in the Annual Financial Statements being 

materially misstated. 






The Municipality should take responsibility for the general ledger and compilation of the Annual 

Financial Statements. Auditors should be supplied with information within 48 hours of issuing the 

RFI. 





224


REVENUE 

77. Revenue - Misclassification of revenue 

Audit finding 

According to MFMA section 62(1)(b), the accounting officer of a municipality is responsible for 


reasonable steps to ensure that full and proper records of the financial affairs of the municipality 

are kept in accordance with any prescribed norms and standards. 

Misclassifications were identified in the accounts listed below. 

Vote number Balance per TB Misstatement Over/understatement 

10074708 R1 001 774.11 R25 029 Overstated 

10074705 R28 891.83 R25 029 Understated 

10008221 (R3 420 860.52) R318 755 Overstated 

Revenue R318 755 Understated 

Electricity availability charges to the value of R25 029 were posted to the electricity sales account, 

therefore a misclassification issue between electricity sales and electricity availability charges. 

Repairs & Maintenance expenses to the value of R318 755 were posted incorrectly to the Indigent 

expense vote account during the current year. The Indigent expense vote is net off against income, 

therefore the misclassification has resulted in the understatement of repairs and maintenance and 

income. 

The Manager: Technical Services accidently posted Repairs & Maintenance expenses into the 

Indigent vote (1 0008 221) which are set off against income. There is a lack of management review 

to ensure that the allocations in the general ledger is appropriate. 

This will result in a misstatement in the Annual Financial Statements as revenue is understated. 





Management should review the allocations in the general ledger on a monthly basis through 

analytical review and scanning of the general ledger accounts. The revenue population should be 

reviewed and corrected and re-submitted to the AG for audit. 



They will however not adjust the current year's annual financial statements with the recommended 

disclosure. 




225


78. Revenue - Adjustment to trade and other payables amount could not be verified 

Audit finding 

According to MFMA section 62(1)(b), the accounting officer of a municipality is responsible for 


reasonable steps to ensure that full and proper records of the financial affairs of the municipality 

are kept in accordance with any prescribed norms and standards. 

There is no audit evidence/supporting documentation for the line item "Adjustment to trade and 

other payables" totalling an amount of R4 199 554 in the Statement of Financial Performance. 

Reconciliations of the balance sheet accounts are not performed monthly and therefore 

discrepancies are not identified and resolved timeously. The journal was processed by the 

consultants to correct the trade and other payables control account. The contra side of the entry 

was not known and was therefore released to the Statement of Financial Performance. 

This will result in a limitation of scope affecting the audit report as the amount cannot be 

substantiated, this could also result in a misstatement of trade and other payables. 





All balance sheet accounts should be reconciled on a monthly basis and all discrepancies followed 

up and resolved timeously. The supporting documentation for amounts disclosed in the Annual 

Financial Statements should be filed in a methodical manner and submitted to the AG for audit 

purposes. 





226


79. Revenue - Grant income not all received in the current year due to invalid journal 

entries 

Audit finding 





The Tourism Hospitality Training grant received in the current year contains a journal to 

the amount of R173 571. The journal debited Accumulated Surplus and credited Unspent 

Conditional Grants in the 2011 general ledger. A journal was not passed in the 2010 general ledger 

relating to this prior year adjustment. There was no supporting documentation to substantiate the 

journal. The disclosure relating to this grant in the Annual Financial Statements comparatives was 

adjusted to reflect zero revenue and an unspent closing balance of R188 754. The current year 

disclosure was adjusted to reflect an opening balance of R188 754 and an increase in receipts of 

R173 571. 

The resulted in the closing balance for the current year being overspent by R158 541. The 

overspending of the grant results in unauthorised expenditure. 

The CFO processed the journal entry in the current year on demand of management to reduce the 

spent money in the prior year, however there was no supporting documentation. 

The Unspent Conditional Grants and Accumulated Surplus are misstated in the 2011 Annual 

Financial Statements. The disclosure per note 25 in the Annual Financial Statements is misstated 

in the 2011 and in the comparatives. 

Therefore a SAD entry of of debit Unspent Conditional Grants and credit Accumulated Surplus of 

R173 571 is raised on the 2011 SAD. A disclosure SAD of debit opening balance of Unspent 

Conditional Grants for R188 754 and debit Receipts of R173 571 is raised on the 2011 SAD, which 

results in a closing balance of R158 541, therefore a further disclosure SAD of a debit of R362 325 

to the 2011 closing balance. A disclosure SAD of debit Unspent Conditional Grants and 

credit Revenue of R188 754 is raised on the 2010 SAD. 






The Municipality should ensure that all journals processed are substantiated by valid supporting 






227


80. Revenue - Grants not utilised for its intended purposes and misclassification between 

operating and capital grant expenditure 

Audit finding 

DORA section 15(1): Despite anything to the contrary contained in any law, an allocation referred 

to in schedule 4, 5, 6, 7 or 8 may only be utilised for the purpose stipulated in the schedule 

concerned and in accordance with the framework published in terms of section 14. 

During our testing of operating grant expenditure we noted that the following expenditure incurred 

was not within the constraints of the various grants under which they were claimed: 

Grant Expenditure Amount 

Municipal Infrastructure Grant End Caps R258.75 

Municipal Infrastructure Grant Vodacom Vouchers R578.95 

Municipal Infrastructure Grant Credenza Senator desk R1 581.25 

Municipal Infrastructure Grant Laptop Bag R325.00 

Municipal Systems Improvement Grant Performance at the Trans Baviaans R600.00 

Municipal Systems Improvement Grant Olien Hout Tree (2m) R293.99 

Municipal Systems Improvement Grant 3 wire flexilight R3 002.63 

Municipal Systems Improvement Grant End caps R35.09 

Municipal Systems Improvement Grant Lap 3m R104.95 

Municipal Systems Improvement Grant Robertson Blue Food colouring R4.34 

Municipal Systems Improvement Grant Robertson Red Food colouring R4.34 

Municipal Systems Improvement Grant Crepe Paper white R10.44 

Municipal Systems Improvement Grant Knitting needles R100.00 

Municipal Systems Improvement Grant Wire Brush 110x6mm R26.76 

Municipal Systems Improvement Grant Performance at graduation R500.00 

ceremony 

Municipal Systems Improvement Grant Bacon and eggs loaf R33.39 

Municipal Systems Improvement Grant Paper plates R16.50 

Municipal Systems Improvement Grant Sugar R17.50 

Municipal Systems Improvement Grant S&T Collecting of chainsaw R100.00 

Tourism and Hospitality Training Building of stone wall R3,337.50 

Tourism and Hospitality Training 26 inch bicycle tubes R132.24 

Tourism and Hospitality Training Rear wheel bicycle axles R432.28 

Tourism and Hospitality Training Sundries and cleaning materials R34.20 

Tourism and Hospitality Training 8 speed log R233.70 

Tourism and Hospitality Training Outer cable R39.90 

Tourism and Hospitality Training 26x1.90 bicycle tyre R93.99 

Tourism and Hospitality Training Cement all purpose R1,655.28 

Tourism and Hospitality Training Ysterpale R1,671.01 

A projected disagreement misstatement of R935 242.17 was included on the Summary of 

uncorrected misstatements as revenue to this amount should not have been transferred from the 

Unspent conditional grants balance. 

Grant expenditure for which supporting documentation could not be obtained 

Grant 

Finance Management Grant 

(1 0008 082) 

Expenditure description 

Amount 

Correction wrong allocation R8 138.35 

228


Finance Management Grant (1 0008 

082) 

Finance Management Grant (1 0008 

082) 

Municipal Infrastructure Grant (1 0050 

072) 


072) 

Municipal Systems Improvement Grant 

(3 0033 102 5) 

Courier fee included R162.28 

Digital conference system R1 647.89 

Correction wrong allocations R10 220.00 

Waltons Office pens black 

R34.98.00 

Willowmore fax and telephone R400.00 

A projected limitation misstatement of R1 265 717.53 was recorded in the Summery of 

Uncorrected Differences. 

In addition to this we identified the following transaction which was claimed as a operating grants 

expenditure but is capital in nature: 

Grant Expenditure Amount 

Municipal Infrastructure Grant Steytlerville: Upgrading of streets R308 007.80 


072) 

Willowmore: Upgrading of Streets R316 971.90 

A factual disagreement misstatement for classification of R624 979.70 has been included on the 

Summary of Uncorrected Misstatements. 

There is a lack of review by the Chief Financial Officer to verify that allocations are only utilized for 

its intended purposes. 

Non-compliance with section 15(1) of the DORA. 

Unspent conditional grants are overstated and grant revenue understated in the annual financial 

statements as allocations were not utilised for its intended purposes. These expenditure items 

also represent unauthorised expenditure as defined by the MFMA. 

Operating grant expenditure is overstated and capital grant expenditure is understated by R624 

979.70 in the annual financial statements as expenditure of a capital nature was incorrectly 

expensed. 


Leadership 




A monthly reconciliation should be performed between the actual allocation received, the amounts 

spent and the remaining cash on hand from the allocation. As part of this reconciliation all 

expenditure claimed against the allocation should be evaluated in accordance with the grant 

conditions to confirm the validity of the claim. The split between capital and operating grant 

expenditure should also be considered during the reconciliation process. The Chief Financial 

Officer should review the reconciliation and sign it as evidence of the review process. 

229






230

81. Revenue - Errors on service charges income 

Audit finding 






During our detail testing performed on service charges income we could not obtain water meter 

reading cards for debtor 32813007 and 32821004. It was not possible to verify that the meter 

reading on the system was captured correctly. The extrapolated limitation error is R83 151.51 

overstatement. 

The debtor 39216425 was charged twice for availability. We have also noted that there is electricity 

expenses that were processed to an income vote 10074705 (electricity 

availability).The extrapolated disagreement misstatement is R567 776.51 understatement. 

The total extrapolated error is R484 625.01 understatement of revenue. 

The Municipality does not review and reconcile transactions processed to the general ledger for 

appropriate allocation, validity and accuracy. Information is not submitted timeously, 

and Steytlerville does not have a proper filing system for easy access to information. The staff 

processing the entries to the votes do not have the appropriate skill and knowledge to perform 

the tasks. 

Revenue is understated by R484 625.01. 






The CFO should review the general ledger and perform reconciliations on a monthly basis to 

ensure the validity, accuracy and completeness of transactions. All records should be filed in a 

methodical manner. Staff should be adequately trained to perform the function expected of them. 





231

82. Revenue - Errors on journals 

Audit finding 






During the testing of journals relating to revenue, no supporting documentation could be obtained 

for the following journals: 5853, 5912, 5904, A23/10/11, A85/10/11. The extrapolated limitation 

misstatement is R183 279.74, an overstatement of revenue. 

The total extrapolated error for the abovementioned is R183 279.74 

All the journals that we could not obtain were from Steytlerville, they do not keep proper records of 

the previous year’s documents and do not have a proper filing system for easy access to 

documents. Management do not review the journals processed on the system for validity, accuracy 

and allocation. 

Revenue is overstated by R183 279.74 






Implement proper record keeping to ensure supporting documentation is in maintained. 

Management should review the journals processed on the system to ensure validity, accuracy 

and allocation is appropriate. 





232


TAXES 

83. VAT - Inaccurate VAT reconciliation 

Audit finding 





Detail testing on the VAT receivable for the 2009/2010 and 2010/2011 financial year indicated that 

the amount s reflected on the VAT 201's monthly were not accurately reconciled to the 

VAT general ledger accounts monthly. 

2010 financial year 

The recalculated VAT receivable of R7 727 reflected a difference of R1 331 666.57 from the VAT 

receivable in the general ledger of R1 339 394 for the year ended 2009/2010. 

The R1 088 297 unknown difference consists of differences that could not be substantiated against 

valid and accurate supporting documentation includes VAT output under declared on the VAT 

201's of R87 806.05, an invalid VAT journal of R 240 929.98 that was processed in the output VAT 

general ledger account to reconcile the trade receivables sub-ledger to the general ledger, VAT 

input that was processed to the general ledger but not declared on the VAT 201's of R845 155.79 

and VAT receipts received in the bank account were not allocated to the VAT general 

ledger account of R10 017.35. 

In addition to this there are a known differences due to the Vote number 300350041 reflecting a 

credit balance of R436 814.12 relating to the 2008/2009 financial year was not brought forward as 

an opening balance into the 2009/2010 financial year and a difference of R113 444 between the 

amount recouped from SARS for the May/June 2009 VAT 201 and the VAT receivable per the 

Annual Financial Statements for the 2008/2009 financial year; 


The recalculated VAT receivable of R 1 917 797.76 reflected a difference of R 1 019 121.29 from 

the VAT receivable in the general ledger R2 936 919 for the year ended 2010/2011. Differences 

that could not be substantiated against valid and accurate supporting documentation includes 

a recalculated opening balance of the current financial year reflecting an understatement difference 

of R 1 331 666.57 from the general ledger and R 187 582.47 not processed in the VAT 201 but 

recorded in the general ledger. 

The R500 128 unknown difference consists of output VAT of R393 068 being under declared on 

the VAT 201's and input VAT of R107 059.41 claimed on the VAT 201 but not processed in the 

general ledger. 

The VAT 201's are not reconciled to the VAT receivable account in the general ledger on a 

monthly basis. No output VAT has been declared on revenue arising from receivables which 

results in significant variances between the output VAT on the VAT 201 and output VAT per the 

general ledger. 

Due to reconciliations not being performed on a monthly basis, errors may not be identified and 

corrected timeously which may result in the misstatement of the VAT receivable balance in the 

Annual Financial Statements. 

The recalculated VAT receivable reflected a difference of R1 331 666.57 from the VAT receivable 

in the general ledger in the 2009/2010 financial year. 

233


The recalculated VAT receivable reflected a difference of R1 019 121.29 from the VAT receivable 

in the general ledger in the 2010/2011 financial year. 





The VAT 201's should be reconciled to the VAT receivable account in the general ledger on a 

monthly basis and all reconciling items should be followed up and resolved timeously. 

The Chief Financial Officer should review the process and sign as evidence of review. 





234

84. VAT - Invalid and inaccurate journal entries 

Audit finding 






Numerous journals were prepared by Maxprof (consultants) and processed by the Municipality to 

the VAT receivable account in both the 2009/2010 and 2010/2011 financial year. These journals 

were for VAT over declared on revenue from receivables raised on service charges. 

Upon comparison of the VAT output vote 300350031 and the Maxprof journals we verified that 

Maxprof referred to the monthly debit runs posted to the output VAT account 300350031 as VAT 

over declared on revenue. 

The 300350031 VAT vote consist of direct income (cash receipts where no debtor was raised) and 

monthly debit runs which is the VAT recorded for accounts raised on service charges (Water, 

Electricity, Refuse and Sewerage). Output VAT should be declared on the VAT 201 for all VAT 

transactions posted to vote 300350031. 

Detail testing on VAT indicated that no output VAT has been declared on revenue where debtors 

were raised for monthly debit runs, this is an indication that VAT has been under declared on 

revenue. 

Refer below for detail: 


Account Journal Vote number Debit Credit 

VAT adjustment account A33/09/10 300350071 R374 652 

Eiendomsbelasting A33/09/10 10002564 R374 652 



VAT adjustment account A96/10/11 300350071 R187 582.47 

Eiendomsbelasting A96/10/11 10002564 R187 582.47 







We also verified an invalid journal entry was processed by the Municipality to reconcile the VAT 

201’s to the general ledger for the 2009/2010 financial year. 




We also verified a reversal journal that was incorrectly processed against property rates as 

opposed to service charges for VAT under declared in their November/December 2009 VAT 201 in 

the 2009/2010 financial year. 



235



No supporting documentation could be provided for a journal that relates to the 2009/2010 financial 

year. 


VAT adjustment account A33/09/10 300350071 R1 672.30 

Grants A33/09/10 10050910 R1 672.30 

VAT was incorrectly claimed on license fees on the journal listed below, section 11 of the VAT Act 

indicates that all license fees are zero-rated. 



VAT adjustment account A33/09/10 300350071 R57.98 

Radiolisensies A33/09/10 10006159 R57.98 




Radiolisensies A97/10/11 10006159 R289.57 

VAT was incorrectly claimed on a transaction that has been cancelled for 2010/2011 financial year. 



Drukwerk 

& A95/10/11 10006078 R14.85 

Skryfbehoeftes 

Management has processed journal entries to the VAT receivable account without reviewing the 

supporting documentation and understanding the basis upon which the journal is calculated. 

Journal entries with insufficient supporting documentation will result in misstatements of the VAT 

receivable account in the Annual Financial Statements. This may result in a limitation of scope and 

a possible disclaimer in the audit report. 


The estimated population misstatement on the VAT receivable account for the 2009/2010 financial 

year is R340 640.51 which consist of an understatement limitation of R150 916.22 and an 

overstatement disagreement of R491 557.12. 


The estimated population misstatement on the VAT receivable account for the 2010/2011 financial 

year consist of an R406 217.95 overstatement disagreement. 


Leadership 



236



All journal entries processed should have sufficient supporting documentation and calculations to 

substantiate the entry. Journal entries should make business sense and should be reviewed by the 

Chief Financial Officer. The Municipality should take responsibility for all work performed by the 

service provider. 





237


85. VAT - Output VAT only declared on direct income 

Audit finding 

Section 7 of the VAT act states: 

Imposition of value-added tax – Subject to exemptions, exceptions, deductions and adjustments 

provided for in this Act, there shall be levied and paid for the benefit of the National Revenue Fund 

a tax, to be known as value-added taxa) 

on the supply by any vendor of goods or services supplied by him on or after the 

commencement date in the course of any enterprise carried on by him. 

Detail testing on VAT indicated that income subject to output VAT totalled R8 404 637, whereas 

output VAT declared on the VAT 201's in the current financial year amounted to R4 521 785. The 

variance of R3 882 852 is due to the fact that output VAT has only been declared on direct income, 

which includes all income for which no receivable was raised (Prepaid electricity, Building plan 

fees, Cemetery fees, Commission received, Connection fees, Membership fees, Rezoning fees, 

Transaction fees and Valuation fees). The fact was noted as total VAT declared on the VAT 201's 

amounted to R633 050 and the VAT per the Summary of direct income report (BS -Q993GA) 

amounted to R632 971. However the Vatable revenue per the general ledger was R8 404 637, 

resulting in output VAT of R1 176 649. Detail discussions with the CFO and above-mentioned 

statements corroborates the fact that no output VAT has been declared on services rendered 

where a receivable was raised. 

The CFO does not use the Output VAT general ledger account, 300350031 0035 VAT Main 

Ledger VAT INCOME Received/Ontvang, to compile the VAT201's. The report, BS-Q993GA, A 

summary of direct income, is drawn and used to compile the VAT201. A reconciliation is not 

performed between the VAT general ledger account and the Direct Income Report used. 

The Municipality is under declaring output VAT and SARS may impose penalties and interest for 

vatable income not declared on the VAT 201's. This will result in a financial loss to the Municipality, 

being fruitless and wasteful expenditure. 


Leadership 




The Municipality should ensure that all vatable income is declared on the VAT 201's on a bimonthly 

basis and the output VAT is raised in the general ledger account. The output VAT general 

ledger account should be used to compile the VAT201's and a reconciliation should be performed 

between vatable income and output VAT declared to test reasonability. 





238


ANNEXURE B: OTHER IMPORTANT MATTERS 

EMPLOYEE COSTS 

1. Personnel expenditure - Incorrect posting of leave back pay to allowances 

Audit finding 





control.” 

During the detail testing performed on allowances it was noted that there was an incorrect posting 

of Back pay to Allowances. This was for an amount of R4 666.66 in respect of employee F Arries 

with employee number 68. This results in an extrapolated classification error of R139 991.63 that 

has been included on the Summary of uncorrected misstatements. 

Through enquiry from the expenditure clerk it was noted that this posting was done in error. The 

CFO does not review the appropriateness of allocations to the general ledger. 

This results in a misclassification between the various components included in Personnel 

Expenditure resulting in inaccurate disclosure in the Annual Financial Statements. 


Leadership 




All inputs included in the monthly payroll run should be reviewed by the Chief Financial Officer by 

agreeing the variables such as hours and rates to the relevant supporting documentation and 

authorisation forms. Any variances should be corrected before the final payroll run is performed. 

The payroll run should be signed as evidence of the review function performed. 

The supporting documentation for the payroll run inputs should be filed along with the payroll run to 

facilitate easy retrieval of the information when required. 





239



2. Internal Control - Cash and cash equivalents: Cheque mail received not opened by two 

people 

Audit finding 





During our process of obtaining an understanding of the receipt transaction flow it was noted that 

the mail register is not signed as proof that the mail is opened by two staff members. Upon inquiry 

from the Secretary of the Municipal Manger it was noted that only the Archives Clerk is responsible 

for the opening of mail. This was confirmed by inspecting the signature in the mail register. 

This is caused by lack of staff and therefore segregation of duties issues. 

The risk of fraud is increased as cheques might be lost or stolen thereby resulting in a financial 

loss to the Municipality. 


Leadership 


execution of internal control objectives, processes and responsibilities 


Two people should open the mail and sign on the mail register as proof of receipt. 





240


3. Internal Control - Other financial assets: There are no monthly reconciliations of 

investment schedules prepared 

Audit finding 





Whilst obtaining an understanding of the investment process it was noted that a monthly 

reconciliation between the investment statements and the general ledger is not performed. 

There are no controls in place by management to ensure that monthly investment reconciliations 

are performed. 

The investments and interest in the financial records may be misstated, as interest may not be 

completely and accurately recorded. 


Leadership 




There should be a reconciliation performed on a monthly basis by the Chief Accountant to agree 

the amounts per investment bank statements from financial institution to the general ledger. The 

reconciliation should be reviewed and approved by the CFO. He should sign the reconciliation as 

evidence of the review process. 

The investment statement should be reconciled to the investment and interest general ledger 

records on a monthly basis by the Chief Accountant. The reconciliation should be reviewed and 

approved (signed) by the Chief Financial Officer and any queries followed up and resolved 

timeously. 




Management response is noted, however as this is a very important monthly control this matter will 

remain as an internal control deficiency. 

241


4. Internal Control - Expenditure: Exception reports are not generated, reviewed and acted 

upon. 

Audit finding 

Section 62(1)(a) of the MFMA No. 56 of 2003 states that the accounting officer of a municipality is 

responsible for managing the financial administration of the municipality, and must for this purpose 

take all reasonable steps to ensure that the resources of the municipality are used effectively, 

efficiently and economically. 

Management does not generate and review exception reports from the payment system on a 

monthly basis in order to identify and to follow-up on the following exceptions: 

Duplicate payments 

Duplicate orders 

Invoices dated before order date 

Missing invoices and payment numbers 

Payment date before invoice date 

Differences were an amount exceeding threshold is entered in the system. 

The cause is due to lack of management oversight. 

Concern is expressed that the municipality might be in contravention with the applicable laws and 

regulations. Duplicate orders might be issued for the same goods and/or services which may lead 

to unauthorised and/or fruitless and wasteful expenditure. This may result in the 

municipality incurring financial losses. 


Governance 

Ensure that there is an adequately resourced and functioning internal audit unit that identifies 

internal control deficiencies and recommends corrective action effectively. 


It is recommended that management ensure that exception reports are generated and reviewed on 

a monthly basis by senior officials in the finance section. The exception report must be reviewed 

for: 

Duplicate payments 

Duplicate orders 

Invoices dated before order date 

Missing invoices and payment numbers 

Payment date before invoice date 

Differences were an amount exceeding threshold is entered in the system. 

The exception report must be dated and signed by the responsible official as documented 

evidence that the control procedure has been performed. The signed reports must be filed 

accordingly in a sequential order. 





242


5. Internal Control - Action plans to address audit findings not implemented yet 

Audit finding 

Per section 131 of the MFMA the following is required: 

(1) A municipality must address any issues raised by the Auditor-General in an audit report. The 

mayor of a municipality must ensure compliance by the municipality with this subsection. 

It was noted that the Municipality held a strategy session during April 2011 to develop action plans 

to address prior year audit findings. These action plans were however focused at correcting the 

findings rather than the root causes. There was also no monitoring process in place to manage the 

implementation of these action plans. The action plans are not specific enough and measurable to 

confirm that the audit findings are appropriately addressed. 

The audit report was only issued in April 2011 and therefore action plans were only developed after 

that. The timing from the date of action plans to year end puts a limitation on the implementation of 

these action plans. 

The prior year audit findings may re-occur in the current year which could impact on the fair 

presentation of financial information in the annual financial statements and on maintaining an 

effective system of internal control. 


Leadership 

Develop and monitor the implementation of action plans to address internal control deficiencies. 


When developing action plans to address internal and external audit findings, the root cause rather 

than the finding should be corrected. The required action should also be specific and measurable 

to confirm that the audit findings are appropriately addressed. 

The implementation of action plans should be monitored closely by the internal audit department. 

The head of internal audit should report on the progress at each audit committee meeting. 



The audit report was received late and was only tabled at a council meeting on the 9 June 2011. 

There after an action plan was developed to address the audit report issues and this action plan 

will be monitored on a continued basis. 



243

6. Internal Control - No monitoring of master file amendments 

Audit finding 






Whilst obtaining an understanding of the controls around master file amendments, it was noted that 

there is no evidence that amendments are being reviewed and approved. 

During the execution phase, it was also noted that the Municipality could not provide us with the 

Master file amendment reports to verify whether master file amendments are made on a timely 

basis and by authorised personnel only and that these amendments are being monitored and 

reviewed. The Chief Financial Officer confirmed that there is no supporting documentation for the 

amendments processed on the system at the audit steering committee meeting held on 

15 September 2011. 

The facts stated above results in a limitation of scope issue. 

Management has not identified and instituted controls to mitigate and detect unauthorised master 

file amendments. 

This may result in unauthorised master file amendments, including the creation of fictitious 

employees, therefore increasing the risk of fraud and possibly resulting in a financial loss to the 



Leadership 




Access to the master file amendment function should be limited to authorised employees and such 

access should be password controlled. 

An application form which is sequentially numbered should be completed for any master file 

amendments required. 

This application should be approved by the Chief Financial officer. 

Both the person requesting the change and the Chief Financial Officer should sign and date this 

application. 

The accountant: expenditure should capture any master file changes but these changes should 

only be applied to the system once authorised by the Chief Financial Officer. 

This authorisation function should also be password controlled. 

A master file amendments report should be generated from SAMRAS DB4 on a monthly basis. 

This report should be reviewed by the Chief Financial Officer. 

All unusual changes should be agreed to the master file amendment application forms. 

This report should be signed and dated as evidence of the review process. 

244






245


7. Internal Control - Journals are prepared and authorised by the same person 

Audit finding 





It was established that there is no segregation of duties in the finance department. The Chief 

Financial Officer prepares and authorises journals. 

This was also noted by the internal audit report on pre-paid electricity dated September 2010. 

This is as a result of a lack of oversight by the accounting officer as well as a staff capacity 

problem in the finance department. 

This may result in fraudulent/inaccurate financial reporting as a result of fraud and/or error due to a 

lack of oversight and review of the work performed by the Chief Financial Officer. 


Governance 

Implement appropriate risk management activities to ensure that regular risk assessments, 

including consideration of IT risks and fraud prevention, are conducted and that a risk strategy to 

address the risks is developed and monitored. 


Management must also ensure that adequate segregation of duties exist so that the preparer is not 

the same as the official recording/approving documentation/records. The accounting officer should 

review the work performed by the CFO if there is no segregation of duties. 





246

8. Internal Control - Revenue: No rates reconciliation prepared 

Audit finding 




No reconciliation was performed between the valuation roll and the valuation of properties per the 

general ledger for the period ending 30 June 2011. 

The Manager: Income is not aware that a rates reconciliation should be prepared for the period 

ending 30 June 2011. 

Misstatement of property valuations could result in the misstatement of Property Rate Income and 

receivables from non-exchange transactions. 






The accountant: income should perform reconciliation between the valuation roll and the valuation 

of properties per the general ledger for the period ending 30 June 2011. This reconciliation should 

be reviewed and signed by the Chief Financial Officer. 




Management response is noted, however as this is a fundamental control, this matter will remain 

as an internal control deficiency. Detailed procedures have been designed to address the 

completeness assertion during the performance of the substantive audit work. 

247


9. Internal Control - Revenue: No reconciliation between valuation roll and the Deeds office 

Audit finding 

In terms of the Municipal Finance Management Act, In terms of section 64(2)(f) of the MFMA the 

accounting officer should take all reasonable steps to ensure that the municipality has and 

maintains an effective system of internal control regarding debtors and revenue. 

No reconciliation was performed between the valuation roll and the Deeds office information for the 

period ending 30 June 2011. 

The manager: Income was not aware that a reconciliation between the valuation roll and the deeds 

office should be prepared. 

This may result in ervens recorded on the system which do not exist or an omission of ervens on 

the system, which will result in misstatement of Property Rate Income and receivables from nonexchange 

transactions. 


Leadership 




The accountant: Income should perform a reconciliation between the valuation roll and the Deeds 

office information for the period ending 30 June 2011. This reconciliation should be reviewed and 

signed by the Chief Financial Officer. 





248


10. Internal Control - Revenue: No reconciliations between Syntell pre-paid electricity 

system and SAMRAS are performed 

Audit finding 



No reconciliation was performed between Syntell and SAMRAS DB4 system for the pre paid 

electricity sales for the period ending 30 June 2011. 

There is no isolation of responsibility and oversight by management to ensure that the 

reconciliation is performed. 

Revenue and receivables from exchange transactions may be misstated in the Annual Financial 

Statements. There may be misappropriation of cash resulting in a financial loss to the Municipality. 


Leadership 


execution of internal control objectives, processes, and responsibilities. 


Revenue and receipts reconciliations should be performed by the finance clerk between the Syntell 

and SAMRAS system. The finance clerk should sign the above reconciliation as evidence of 

preparing the reconciliation accurately and completely. The income reconciliation should be 

reviewed by the senior clerk for reasonableness and sign the reconciliation as evidence of the 

review process. 





audit procedures have been designed to address the completeness issues and any findings will be 

reported on separately. 

249


11. Internal Control - Revenue: Lack of follow up on consumer accounts included in the 

monthly exception report 

Audit finding 



Whilst gaining an understanding of the methods implemented to confirm that consumers are 

charged for accurate water and electricity consumption we could not confirm that consumer 

accounts that are included in the monthly exception report are followed up and investigated to 

determine that the water and electricity consumption charged to the consumers are accurate. 

Management does not place emphasis on the importance of controls and control environment. 

Revenue and receivables from exchange transactions might be misstated in the Annual Financial 

Statements. 


Leadership 




The finance clerk should follow up on debtors appearing on the exception report and investigate 

and resolve discrepancies timeously. The reasons should be clearly documented and how the 

issue was resolved. The exception report and reasons should be reviewed by the senior clerk, who 

should sign the exception report as evidence of review and agreement with the resolution 

documented. 





250


12. Internal Control - Revenue: No control to confirm that all revenue from septic tank 

removals are processed 

Audit finding 



During our understanding of the septic tank removal process and related controls, we could not 

identify a control that is implemented to confirm that the revenue from all septic tank removals are 

processed on the system. 

Management does not place emphasis on the importance of controls and control environment. 

Revenue and receivables from exchange transactions may be understated in the Annual Financial 

Statements. 


Leadership 




The orders for septic tank removals should be pre-numbered. A regular reconciliation should be 

performed between the order book and the invoice raised and the amounts recorded as revenue in 

the SAMRAS system. There should be a follow up on outstanding order numbers not recorded. 

Management should review the reconciliation performed. 





251


13. Internal Control - Revenue: No control in place to verify the cut off of revenue from 

water and electricity consumption 

Audit finding 



During our understanding of the process of recording revenue and the related controls, we were 

unable to identify any controls to confirm that the revenue from water and electricity consumption is 

recognised in the correct period. 

The revenue for water can only be recorded after the readings have been taken and this occurs in 

the month subsequent to usage. 

The revenue and receivables from exchange transactions may be misstated in the Annual 

Financial Statements due to incorrect cut off. 





Management should prepare an accrual based on the best estimate at year-end to ensure that the 

revenue is recorded in the correct period. If SAMRAS is utilised by multiple municipalities, a 

software modification to automatically calculate the adjustment to apportion the revenue may prove 

to be a valuable investment. 




Management response is noted, however, this matter will be reassessed at the final audit. Detailed 


separately. 

252


14. Internal Control - Revenue: No reconciliation between eNatis and SAMRAS for the 

licensing fee income 

Audit finding 



There is no reconciliation between the eNatis revenue for licensing and permits and receipts 

recorded on the SAMRAS system. 

There is no isolation of responsibility and oversight by management to ensure that the 

reconciliation is performed. 

This may result in the misstatement of licensing and permit income and receivables from exchange 

transactions. Inaccurate receipts may be banked, resulting in financial loss to the Municipality. 


Leadership 




Revenue and receipts reconciliations should be performed by the expenditure clerk between the 

eNatis system and the SAMRAS DB4 system on a monthly basis. The expenditure clerk should 

sign the above reconciliation as evidence of preparing the reconciliation accurately and completely. 

The income reconciliation should be reviewed by the CFO for reasonableness and sign the 

reconciliation as evidence of the review process. 






separately. 

253


15. Internal Control - Revenue: Lack of segregation of duties in the licensing department 

Audit finding 

In terms of Municipal Finance Management Act Section 64. 

(1) The accounting officer of a municipality is responsible for the management of the revenue of 

the municipality. 

(2) The accounting officer must for the purposes of subsection (1) take all reasonable steps to 

ensure 

(f) that the municipality has and maintains a system of internal control in respect of debtors and 

revenue, as may be prescribed; 

During our walkthrough of the licensing fee income process and related controls, it was noted that 

the face value document control sheet dated 15 June 2011, was signed by Ms EL Le Grange as 

both preparer/cashier and reviewer/supervisor. 

There is only one person employed for licensing administration resulting in a limitation regarding 

segregation of duties. 

Errors may go undetected and there is a possibility of fraudulent transactions. This may result in a 

financial loss to the Municipality. 


Leadership 


execution of internal control objectives, processes, and responsibilities. 


Management should ensure there is segregation of duties between the cashier and the supervisor. 

The accounting officer should review the work performed in the licensing department. 


Management agreed with the audit finding. Management will discuss this matter at the 

management meeting and come up with an action plan. 



254


16. Internal Control - Trade and other receivables: Sub ledger is not reconciled to the 

receivables control account. 

Audit finding 








Section 122(1) (a) of the MFMA states inter alia that every municipality must for each financial year 

prepare annual financial statements which fairly presents the state of affairs of the municipality, its 

performance against its budget, its management of revenue, expenditure, assets and liabilities, its 

business activities, its financial results, and its financial position as at the end of the financial year. 

Whilst obtaining an understanding of the receivables process and relevant controls we noted that 

there are no controls in place to confirm that the receivables sub ledger agreed to the general 

ledger control account. 

This is due to inadequate monitoring and review of the financial reporting process. 

This could result in the misstatement of revenue and receivables from both exchange and nonexchange 

transactions. 


Leadership 




The accountant: Income should perform a reconciliation between the receivables sub ledger and 

the receivables control account on a monthly basis. The CFO should review and sign the 

reconciliation as evidence of the review process. All reconciling items should be followed up and 

resolved timeously. 




Management response is noted, however as this is a fundamental monthly control this matter will 

remain as an internal control deficiency. 

255


17. Internal Control - Trade and other receivables: No controls in place to verify that 

overdue accounts are blocked 

Audit finding 








Section 122(1)(a) of the MFMA states inter alia that every municipality must for each financial year 

prepare annual financial statements which fairly presents the state of affairs of the municipality, its 

performance against its budget, its management of revenue, expenditure, assets and liabilities, its 

business activities, its financial results, and its financial position as at the end of the financial year. 

Whilst obtaining an understanding of the receivables process and relevant controls it was noted 

that there are no controls in place to verify that overdue accounts are blocked. 

This is due to inadequate control over receivables and therefore blocking of accounts. 

This will cause unnecessary cash flow problems and an increase in bad debts resulting in a 

financial loss to the Municipality. 


Leadership 




The debt controller should generate a report of all accounts that are in arrears on a monthly basis. 

These accounts should be closely monitored and controlled. The technical department should be 

instructed to block all accounts appearing on this report that are assessed to be unreasonable. The 

CFO should review that all receivables accounts on the report have been appropriately blocked 

and sign as evidence of review. 





256


18. Internal Control - Expenditure: Inaccurate payments made to prepaid electricity vendors 

Audit finding 





During our process of obtaining an understanding of the payment transaction flow, it was noted 

that payments to prepaid electricity vendors were not accurate for May 2011. The commission 

computed based on amounts received of R91 016.2 was R2 730.48 and agency fees were 

R250.00, however the amounts were incorrectly added together to R2 480.48 instead of 

R2 730.48. 

Management does not place emphasis on independent review and controls to prevent 

irregularities/errors. 

The apparent lack of review will result in inaccurate payments to electricity vendors, which could 

result in a financial loss to the municipality and misstatement of expenditure and payables in the 



Leadership 




The CFO should review and authorise the computation of commission by the Accountant 

expenditure prior to payment being made. 





257


19. Internal Control - Expenditure: There are no controls around processing of invoices 

Audit finding 





During a discussion with the accountant expenditure, whilst formulating the system description on 

the general purchases and payables financial cycle, it was noted that there is no control in place 

to verify the accurate capturing of the transactions. 

The accountant expenditure confirms that she does agree invoices against orders for the correct 

quantity, amount, suppliers etc to the general ledger printout. There is however no evidence that 

these procedures are performed to verify the accurate capturing of the transactions. 

There is furthermore no evidence that the invoices are tested for mathematical accuracy and 

to confirm that these invoices are valid VAT invoices. 

Management does not place enough effort into controls to prevent irregularities relating to 

processing of invoices. 

Trade payables and expenses might be misstated in the annual financial statements. 


Leadership 




Once transactions have been posted in the general ledger, management should generate a 

printout of the transactions recorded in the general ledger. This printout should be reviewed 

to confirm that transactions have been recorded at the correct amount, in the correct financial 

period (inspect the invoice date) and against the correct vote number. The accountant expenditure 

and the manager expenditure should sign the printout and the attached invoices as evidence that 

these procedures were performed. 

The creditors’ clerks should test the mathematical accuracy of supplier invoices, and the VAT 

should be recalculated. All creditors’ clerks should be trained to identify any invoices that are not 

valid VAT invoices as required by the VAT Act. The invoices should be signed by the creditors’ 

clerks as evidence that these procedures were performed. The invoices should be signed by either 

the accountant expenditure or the manager expenditure as evidence that the work performed by 

the creditors’ clerks on the invoices has been reviewed. 





258


20. Internal Control - Expenditure: No controls over journal entries processed 

Audit finding 





During our process of obtaining an understanding of the journal entry processes, it was noted 

that there are no controls because of lack of segregation of duties around preparing, capturing and 

reviewing journal entries. 

Journal entry number: 14/10/11 dated 31/08/2010 for an amount of R 1 380 000 was passed 

without a journal report printed from the system to compare to the journal sheet to ensure accuracy 

of recording. The journal was prepared, captured and signed as reviewer by CFO. 

This is caused by lack of emphasis placed by management on controls and segregation of duties. 

Invalid expense journals passed due to lack of supporting documentation for journals. 

Management override of controls and invalid journals being passed, due to lack of evidence of 

management review and authorisation of journals. 

Journals being passed in the incorrect period of assessment. 

The various components in the financial statements might be misstated due to: 


Leadership 




Only journals with valid supporting documentation should be captured onto the system. All journals 

should be authorised by the Chief Financial Officer (CFO) before being processed. The CFO 

should generate a journal report after each journal batch is processed. The CFO should agree the 

journal report to the supporting documentation. The CFO should sign the journal report as 

evidence of the review process. 





259


21. Internal Control - Personnel expenditure: No review of amounts posted onto the system 

for payroll 

Audit finding 





During our process of obtaining an understanding of the payroll recording process flows, we noted 

that the accuracy of amounts captured onto the payroll system are not reviewed, including; variable 

payroll data captured on a monthly basis, acting allowances, standby allowances and overtime 

This is caused by lack of emphasis place by management on independent review and controls to 

ensure that amounts processed are valid and accurate. 

This may result in invalid data being captured into the payroll system, thus increasing the risk of 

fraud and therefore resulting in financial loss to the municipality. 





The calculation of all variable payroll expenses including allowances and overtime should be 

reviewed and approved by a senior official before processing. The chief financial officer should 

review the accuracy of the amounts captured in the payroll system to the approved allowance and 

overtime documentation. The CFO should sign the payroll run as evidence of the review process. 





260


22. Internal Control - Personnel expenditure: No documented evidence of performing 

background checks on new employees 

Audit finding 





Whilst obtaining an understanding of the recruitment process in place, we could not obtain any 

evidence that background checks are performed for newly appointed staff. 

Due to a lack of capacity in the HR department background checks are not always performed. 

Employees without the required skills, qualifications and experience might be appointed which 

impacts on the effectiveness and efficiency of the overall control environment and internal control 

systems. 


Leadership 

Implement effective HR management to ensure that adequate and sufficiently skilled resources 

are in place and that performance is monitored. 


For all prospective employees, there should be background checks performed and these should be 

properly documented. 



Background checks are made but are not recorded. In future, they will be recorded. 



261

23. Internal Control - Weaknesses in the control environment 

Audit finding 


In terms of the Municipal Finance Management Act, section 62 (1) (a), “the accounting officer of a 


for this purpose take all reasonable steps to ensure that the resources of the municipality are 

used effectively, efficiently and economically.” 

Management place excessive reliance on consultants for the performance of financial functions. 

The main areas of reliance includes preparation of the financial statements, preparation of journal 

entries and supporting documentation, calculations, reconciliations and preparation of fixed asset 

registers. 

In addition to this the following was noted: 

The policy manuals were last updated and reviewed in 2007 

The recruitment policy does not ensure that skilled and competent staffs are appointed 

Management does not employ personnel who are familiar with the accounting required for unique, 

complex, or non-routine transactions or relevant changes in regarding performance management 

and reporting rules, regulations, and accounting practices 

Management does not have the competence to ensure that events and transactions are properly 

accounted for and that financial statements and related disclosures are presented in conformity 

with generally accepted accounting principles. 

Management does not establish and agree on the knowledge, skills and abilities needed to carry 

out the required responsibilities prior to hiring individuals for key financial reporting positions 

Management does not assure that employees selected for various positions have the requisite 

knowledge, skills and abilities. 

Supervisors do not have the necessary management skills and have not been trained to provide 

effective job performance counselling. 

The Municipality does not have sufficient resources with the appropriate skills and knowledge to 

perform the tasks. 

The Control Environment at Baviaans Municipality does not establish a strong foundation for the 

internal control system. This resulted in a breakdown in discipline, structure, control consciousness 

and effectiveness within the entity: 

Undue reliance on consultants could result in failure to equip staff with the necessary skill and 

knowledge and business disruption in the event that support is no longer provided. 

This will result in the Municipality employees salaries being considered fruitless and wasteful. 


Leadership 

Implement effective HR management to ensure that adequate and sufficiently skilled resources are 

in place and that performance is monitored. 

262



Management should take responsibility to provide accurate and complete information to 

consultants. In addition, management should increase review and monitoring over the 

work performed by consultants, thereby accepting full responsibility for the result. 

Training programmes should continue to equip finance staff with the skill to implement, maintain 

and monitor information and internal control systems that would result in compliance with the 

relevant accounting framework. 





263


24. Internal Control - Revenue: No control in place to prevent electricity losses 

Audit finding 





Based on enquiries from the Chief Financial Officer it was noted that there are no controls in place 

to prevent electricity losses. 

Due to capacity constraints, the Municipality have not implemented controls to monitor electricity 

losses 

The Municipality could suffer financial losses due to excessive electricity losses. Undetected 

electricity theft resulting in revenue losses. Inaccurate disclosure in the Annual Financial 

Statements as required in terms of the MFMA sec 125(2)(d)(i) 


Leadership 




The Income Clerk should perform monthly reconciliations between total electricity consumption 

billed (including pre -paid electricity units sold) and electricity purchased from Eskom. This 

reconciliation should be reviewed by the Revenue Accountant. All discrepancies should be 

followed up and resolved timeously. The reconciliation should be signed as evidence of the review 

process. 


This is being done by the CFO on a monthly basis and form part of his monthly financial report that 

is submitted to council. 



264


25. Internal Control - Other financial assets: There are no proper controls to ensure that 

interest accrued correctly valued 

Audit finding 





During our process of obtaining an understanding of the investments transaction flows, we noted 

that interest recorded on the register did not agree to the interest per the bank statements. 

The investment register does not include interest earned on the Standard Bank account: 

288875729 of R3 708 accrued for the January Month. Interest received from withdrawn 

investments recorded at R5 939.48 per the investment register whereas interest per bank 

statements is R5 973.10 for withdrawals from account: 2069951670 and 2070392879 respectively. 

Management does not place enough emphasis on independent reviews and control environment. 

The investment and interest income balances in the Annual Financial Statements will be misstated. 


Leadership 




The Chief Accountant should reconcile the general ledger to the investment register 

and supporting bank statements on a monthly basis to ensure accuracy. The CFO should review 

the reconciliation and sign as evidence of review. 





265


26. Internal Control - Management do not oversee services of service providers 

Audit finding 

According to MFMA section 116(2)(b): 

(2) The accounting officer of a municipality or municipal entity must - 

(b) monitor on a monthly basis the performance of the contractor under the contract or agreement 

It was noted that there are no controls in place to monitor the performance of contractors, 

especially the service provider appointed to compile the Annual Financial Statements, in terms of 

relevant contracts and agreements entered into with them, on a monthly basis. 

The Municipality do not have enough resources to monitor the services of the service providers. 

Non-compliance with MFMA section 116(2) (b) and the service providers can supply a service 

which is not on standard and the Municipality's staff would not pick it up timeously. 


Leadership 




The supply chain unit should ensure that for each successful bidder, controls are implemented to 

monitor performance of the contractor under the related contract or agreement on a monthly basis 

as required by MFMA section 116(2)(b). 



The internal auditors will be requested to assist management in this regard. The Audit Committee 

will also assist management 



266


27. Internal Control - Revenue: No control identified reconciling the opening balance of the 

unspent grant income to the annual financial statements 

Audit finding 

In terms of the Municipal Finance Management Act no.56 of 2003, Section 122, "Preparation of 

financial statements" - (1) Every municipality and every municipal entity must for each financial 

year prepare annual financial statements which - (a) fairly presents the state of affairs of the 

municipality or entity, its performance against budget, its management of revenue, expenditure, 


end of the financial year. 

During our understanding of the grant process, no control could be identified to confirm that the 

opening balance according to the grant schedule for the Municipality grants agrees to the opening 

balance of the grants bank account. This is evident from the fact that there are no separate bank 

accounts for each grant. Upon enquiry of the CFO as to whether they have implemented a control 

to address the matter he confirmed that there is no separate bank statement for grants and that the 

grant schedule (appendix) will only be compiled by the consultants at year-end. The walkthrough 

could not be performed during planning or during the final audit as they do not have separate bank 

accounts for grants. From the Annual Financial Statements it is evident that unspent grants are not 

cash backed and therefore not only used for intended purposes as the unspent grants balance 

equals R3 219 697 in comparison to a bank overdraft balance of R289 375. 

The responsibilities are not communicated and management is not enforcing the controls to ensure 

accurate financial reporting and compliance. 

The Municipality may be contravening applicable laws and regulations and the conditions of the 

grants provided. The Annual Financial Statements may be materially misstated. 


Leadership 




Budget and Treasury Office Manager should prepare the schedule and the CFO should ensure 

that the opening balances agree and sign the schedule as evidence of review. 





267


28. Internal Control - Related parties: No process in place to identify related parties 

Audit finding 





There is no formal process that management has established to identify, account for and disclose 

related party relationships and transactions in accordance with the applicable financial reporting 

framework authorise and approve significant transactions and arrangements with related parties 

and authorise and approve significant transactions and arrangements outside the normal course of 

business 

This was caused by a lack of management effort regarding establishing controls to assist in 

identifying related parties. 

The risk of fraud is increased due to the ability to unfairly benefit a related party financially. There is 

a risk of non-compliance with the reporting requirements of IAS 24: Related party disclosure. 


Leadership 




For all councillors, there should be a register of interest in contracts which should include interests 

of close family members which should be kept at the CFO's office and should be updated biannually. 

For all section 57 employees and employees working in the SCM department, there should be a 

register of interest in contracts which should be updated bi-annually and kept in the mayor’s office. 

For the rest of the employees, there should be a register of interest in contracts which should be 

updated bi-annually and should be kept at the MM's office. 





268


29. Internal Control - Minimum competency levels of management not monitored 

Audit finding 

In terms of the Government Gazette no 29967, dated 15 June 2007: 

Section 14 (1): The Municipal Manager of a municipality and the Chief Executive Officer of a 

municipality must monitor, and take the necessary steps to ensure, compliance with the prescribed 

minimum competency levels for financial officials and supply chain management officials within the 

timeframes set out in regulation 15. 

Section 14 (2): a Municipality must report the consolidated information in respect of the 

municipality and each of its entities set out in subregulation (4) – 

1. (a) To the National Treasury and to the relevant provincial treasury by 30 January and 30 

July of each year, until 30 June 2015; and 

2. (b) In its annual report, reflecting the information as at the end of the financial year to which 

the report relates. 

We confirmed that the Municipality submitted the report which was due by 30 January 2011 on 24 

January 2011. The second report that was due by 30 July 2011 was however only submitted on 5 

September 2011. 

In addition to this, we verified that the consolidated information reflecting the steps taken to ensure, 

compliance with the prescribed minimum competency levels for financial officials and supply chain 

management officials as at the end of the financial year to which the report relates was 

not included in the annual report. 

The Municipal Manager confirmed that the financial officials did not attend any training in the 

current year due to capacity constraints. 

The Municipality did not have enough resources in the current year to send the specific staff 

members on training. 

It results in a weak control environment as municipal officials are not adequately trained to perform 

their daily tasks as efficiently and effectively as required. The Municipality is in non-compliance 

with the Government Gazette no 29967, dated 15 June 2007. 


Leadership 




The specific staff members, who fall into the classifications of Government Gazette no 29967, 

dated 15 June 2007, must attend the necessary training and this must be monitored to ensure 

compliance with the Gazette in the set timeframes. 

Reports must be sent to National and Provincial Treasury on the specified dates every year. 





269


30. Internal Control - Personnel expenditure: No controls to ensure that back pay for 

employees is recorded in the correct period 

Audit finding 





During our process of obtaining an understanding of the payroll recording process, we noted 

that there is no control in place to ensure that back pay relating to the prior year is captured in the 

correct financial period. 

This is due to the lack of emphasis placed by management on an independent review and controls 

to ensure that amounts processed are recorded in the correct financial period. 

There is a risk that employee cost is overstated in the current financial year. Therefore the financial 

statements will be misstated in the current year and the prior year. 


Leadership 




The back pay should be analysed to assess the expense relating to the 2009/2010 financial year. 

This expense should be recorded in the prior financial year and not the current year. The 

appropriate disclosure should be reflected in the annual financial statements. Journals processed 

and disclosure in the annual financial statements to record these transactions should be reviewed 

by the Chief Financial Officer. 


The SALGBC- Task wage rate collective agreement- April 2010 only came into effect on 1 July 

2010. According to section 7.2.6 eligible employees shall receive nine months retrospective 

increases. This retrospective payment may be paid over a period not exceeding a nine month 

period commencing 1 July 2010. 

Therefore in terms of this agreement the back pay however relating to the 2009/10 period is only 

payable from July 2010 and therefore should be recorded in the current financial period. 


Management response is accepted and the finding is no longer considered relevant. 

270


31. Internal Control - Personnel expenditure: Leave is not authorised prior to leave taken 

Audit finding 





Detail testing on employee costs indicated that there are numerous instances where the leave for 

is only authorised after the leave has been taken, refer below for detail: 

Employee 

number 

Employee 

name 

Leave taken Leave 

authorised 

8 Nazima 23/11/2010 24/11/2010 

8 Nazima 20/09/2010 21/09/2010 

8 Nazima 18/05/2010 24/05/2010 

9 Metembo 16/09/2010 17/09/2010 

12 De Kella 16/09/2010 17/09/2010 

49 Nappies 17 -24/12/2010 20/12/2010 

65 Miggels 04 -11/02/2011 07/02/2011 

72 Dirk 17/08/2010 20/08/2010 

107 Erasmus 14/02/2011 19/02/2011 

116 Larens 02 -04/08/2011 06/08/2010 

127 Mnyele 24/11/2010 25/11/2010 

127 Mnyele 06/05/2011 09/05/2011 

137 Tsili 17 -18/03/2011 24/03/2011 

137 Tsili 16/02/2011 19/02/2011 

139 Nortje 24 -28/01/2011 29/01/2011 

142 Reyners 13 -17/09/2010 20/09/2010 

143 Strydom 18/08/2010 20/08/2010 

148 Mbuqe 08/11/2010 10/11/2010 

Leave granted to the employees verbally and the leave forms only authorised after the leave is 

taken. 

Unauthorised leave could be taken by employees, this may result in a financial loss to the 

Municipality, as the leave may never be recorded on the system and the employee may not have a 

sufficient leave balance. The provision for leave pay balance and employee costs may be 

misstated. 


Leadership 




An employee should not be entitled to leave until a leave form is signed by their supervisor and the 

payroll clerk who ensures that there is a sufficient leave balance available. 

271






272


32. Internal Control - Trade and other payables: Unspent conditional grants and receipts 

Audit finding 

Section 65(1) of the Municipal Finance Management Act No 56 of 2003 states that the accounting 

officer is responsible for the management of the expenditure of the municipality. 

Section 85(2) of the MFMA states "all money received by a municipal entity must be paid into its 

bank account, and this must be done promptly and in accordance with any requirements that are 

prescribed." 

The Municipality is required to keep funds from the Unspent Conditional Grants in separate bank 

accounts. After inspection of the bank accounts, there is no account created for the Unspent 

Conditional Grants. 

The controls regarding the grants received are not being applied sufficiently. 

The funds relating to the various grants may not be spent in terms of the conditions of the grant 

resulting in irregular or unauthorized expenditure. 


Leadership 




Management should implement and monitor controls over the financial administration process. 





273


33. Internal Control - Annual financial statements: Explanation for variances greater than 

10% for general expenditure 

Audit finding 

GRAP 1 requires, where the financial statements and budgets are prepared on the same basis of 

accounting, the inclusion in the financial statements of a comparison with the budgeted amounts, 

and where a different basis of accounting is used, the inclusion of a reconciliation between the 

statement of financial performance and the budget. This disclosure is encouraged in IPSAS 1. 

Upon the completion of risk identification procedures we verified that the individual balances of 

general expenses were not disclosed in Appendix C of the annual financial statements and no 

explanations for the variances could be identified. 

Inefficient monitoring of expenditure throughout the year and the Annual Financial Statements was 

not adequately reviewed prior to submission for auditing purposes. 

Non-compliance with presentation and disclosure of the Annual Financial Statements as required 

per GRAP 1. 






Management should ensure that General expenses in Appendix C of the Annual Financial 

Statements are broken down into the individual balances as disclosed in note 32 of the Annual 

Financial Statements and all variances greater that 10% should be explained. 





274


34. Internal Control - Personnel expenditure: Inconsistencies between leave forms, 

attendance registers and the system 

Audit finding 





control.” 

Based on the audit work performed on a sample of employees, the following discrepancies were 

noted between leave forms, attendance registers and the system. 

Leave that was not processed timeously 

Employee 

Employee Number Month Leave taken Date processed 

Surname 

Nazima 8 January July 

Lotter 43 March July 

Booysen 44 March July 

Uithaler 91 September October 

Daniels 117 June July 

Terblanche 145 May July 

Tarentaal 64 November January 

Nortje 139 July August 

Error Rate is 8/60 that was not processed. Which is a 13,33% error rate. 

No medical certificate provided where employee was sick for 3 consecutive days or more. 

Employee 

Employee Number Days Sick Taken 

Surname 

Coetzee 23 7 

Coetzee 23 6 

Tarentaal 64 3 

Daniels 117 5 

Error Rate is 4/60 that did not provide medical certificate. Which is a 6,66% error rate. 

The leave being reported on the leave system did not match the leave applications/forms. 

Employee 

Employee number Recorded on Recorded on Form 

Surname 

System 

Nappes 49 Family Responsibility Sick Leave 

Leave 

Larrens 116 Sick Leave Annual Leave 

Theunissen 129 Sick leave Annual leave 

Error Rate is 3/60 and thus only 5% 

275


No adequate supporting documents/reasons were provided for the leave taken with the 

leave application forms. 

Employee 

Employee Number Month Leave taken Type of Leave 

Surname 

taken 

Daniels 117 February Family Responsibility 

Terblanche 145 May Family Responsibility 

Mbuqe 148 January Family Responsibility 

Error Rate is 3/60 and thus is only 5% 

Attendance Registers provided do not match the leave captured on the System and/or the 

leave in Leave form files. 

Employee Employee Month leave Days recorded Days leave recorded in 

Surname Number taken 

in System Attendance register 

Davids 10 July 3 days Nil Days 

Coetzee 23 July 7 days 5 days 

Coetzee 23 July 6 days Nil days 

Nappes 49 August 1 day Nil days 

Maart 110 July 4 days Nil days 

Manuel 123 July 3 days 10 Days 

Error rate is 6/60 which is 10% 

Attendance registers could not be obtained for the following employees who have taken 

leave. 

Employee Surname 

Employee Number 

Smit 150 

Error rate of 1/60 which is 1,6% 

Total Error rate is 41,67% as it is 25/60 

Management does not delegate the responsibility to ensure that attendance registers, leave forms 

and capturing of leave is accurate. 

There is a risk that employees may take unauthorized leave and leave records may not be 

updated, resulting in fruitless and wasteful expenditure. 


Leadership 




 

 

 

 

Leave forms should be captured timeously so that it will be reflected on the employee's 

salary slip in the month following the leave taken. 

All leave forms should be accompanied by the required supporting documentation. Any 

contraventions of this must be followed up immediately. 

Employees should complete the leave form accurately and the payroll clerk should ensure 

the form is filled in accurately. 

A reconciliation should be performed between the attendance register and the leave forms 

completed. 

276


 

 

 

 

Annual leave should be approved before employees are allowed to take the leave. 

All leave forms must document date of approval as well as the signature of the person 

authorising the leave. 

All leave forms should have supporting documentation attached to it where applicable. 

Management should review the leave captured on the system to the authorised leave forms 





277


35. Internal Control - Personnel expenditure: Employee files not provided 

Audit finding 





control.” 

The following employee files could not be provided for the appointments test. There is no means of 

identifying whether the employee is a valid authorized employee and that the employee was 

remunerated and appointed according to an authorized appointment process. 

Employee Surname 


Roman 154 

Reyners 158 

For the employee payslip test no personal file could also be provided for Mbuqe, employee number 

148. 

The listed employee files could not be provided which indicates that there were not sufficient 

controls in place over the safekeeping over these employee files. This is due to the Human 

Resource function being in Steytlerville and during the transport of employee files from Willowmore 

to Steytlerville files could go missing due to no records being kept over which files get transported. 

This may result in fictitious employees being loaded on the payroll or the incorrect details being 

loaded on the payroll system resulting in irregular/unauthorized or fruitless and wasteful 

expenditure. 






Employee files should be kept securely and confidentially by the payroll clerk with a proper register 

in place of who took possession of that employee file. No employees should have access to their 

own personal files. An employee should not be captured onto the payroll system by the payroll 

clerk without authorized appointment forms. 





278


36. Internal Control - Provisions: Opening balances brought forward to the incorrect votes 

Audit finding 





The opening balances of Provision for Bonuses and Provision for Long Service Awards were not 

brought forward to the correct votes. An amount of R2 829 that related to Provision for Bonuses 

was brought forward to the Provision for Long Service Awards vote and amounts of R-3 091 and 

R24 393 that related to the Provision for Long Service Awards was brought forward to the 

Provision for Bonuses vote. However the mapping for compilation of the Annual Financial 

Statements was done correctly. 

These journals were initially processed on Caseware (System used by the consultants for the 

compilation of the Annual Financial Statements) by the Municipality and not on Samras (Financial 

system of the Municipality). The vote numbers used in Caseware for the compilation of the Annual 

Financial Statements did not correspond to the actual vote numbers on Samras for these 

provisions in the prior financial year. The transfer of the journals from Caseware to Samras were 

not adequately reviewed by the CFO to verify that the vote numbers correspond for these two 

systems. 

The Bonus and Long Service Award expense in the current year may be misstated in the Annual 



Leadership 




All journals should be directly processed on Samras (Financial system of the Municipality) and not 

on Caseware (System used for the compilation of the Annual Financial Statements). If journals are 

processed on Caseware and transferred to Samras, the CFO should do a detail review on these 

journals to verify that the journals are processed in the correct vote numbers. 

In addition to this management should ensure that current year opening balances per the general 

ledger correspond to the closing balance of the prior year Annual Financial Statements. 





279


37. Internal Control - SCM horizontal audit 

Audit finding 





During the testing of internal controls relating to SCM processes, it was noted that: 

1. There is no review in place for addition of new suppliers into the system to ensure that 

fictitious suppliers are not added to the system, that master file amendments are correct and to 

indicate review of acceptance of suppliers. Supplier number BM 327 with name Sonderend 

with application for registration dated 05 August 2010 was added to the system without any 

form of review by the CFO. 

2. Per inquiry of Chief Accountant, it was confirmed that no controls has been put in place since 

previous year to address supporting documentation and accounting records to be complete, 

relevant and accurate and to be accessible. In previous year, there were major findings 

relating to documentation that could not be obtained and incorrect information received. 

This is caused by management’s lack of emphasis in internal controls relating to SCM processes. 

1. There is a risk of payments being made to fictitious suppliers. 

2. Missing documentation will cause a limitation of scope on the audit and may lead to an 

adverse opinion. 


Leadership 




1. The CFO should on a monthly basis review all amendments to the supplier master file by 

printing out the amendments from the system and then agree details to supplier file by 

checking whether an application form, tax certificate and bank statements have been attached 

by the supplier. The CFO should sign as evidence of doing the review. 

2. The Municipality should consider the need to hire an employee specially dedicated to record 

keeping of documentation and filing system. There should be a register in place to ensure the 

proper movement of documentation, this should contain columns for documentation taken, 

person and dates. The person taking supporting documentation should sign the register to 

acknowledge receipt of documentations. 

Documentation should be kept in a separate locked room to control access to supporting 

documentation to mitigate risks of loss. 

280






281

38. Internal Control - No process in place to identify subsequent events 

Audit finding 






During enquiries of the CFO, it was noted that the municipality does not have processes in place to 

identify subsequent events. 

Management does not understand the definition and nature of subsequent events and therefore do 

not know how to identify such events. 

Events may occur after balance sheet date that need to be adjusted, however may not 

be identified. 


Leadership 




Management should understand that identifying subsequent events is important and put processes 

in place, a questionnaire for example, to identify subsequent events. 





282


39. Internal Control - Property, plant and equipment: Fixed asset register fields not 

complete 

Audit finding 






During the audit of property, plant and equipment, it was noted that the fixed asset register did not 

include the following fields: 

- Physical location of asset 

- Disposal date 

- Amount received for disposal of fixed asset and resultant profit or loss on the disposal 

- Physical condition of the asset 

- Depreciation method and rate used 

- Depreciation charge for each completed year of use 

- Impairment expense for the year 

- Accumulated Impairment for each class of assets 

- Details of any write-down or write-up in carrying value 

The following assets was recorded with no cost 

Number Department Description Date Amount 

1621 Infrastructure Valuation Roll 14/04/2009 R0 

Infrastructure N Payment of vehicles 02/09/2010 R0 

Other Equipment Syntell 28/09/2009 R0 

Other Equipment SCM Module 29/09/2009 R0 

The following assets were recorded without an acquisition date 

Number Department Description Date Amount 

Infrastructure Paving of streets R77 478,95 

Infrastructure Sidewalks Willowmore R560 948,18 

Once assets are bought, it is not made a priority to update the fixed asset register as soon as is 

possible with all relevant data being filled in. The Chief Financial Officer also does not make a point 

of reconciling the additions and disposals recorded on the fixed asset register to the actual 

additions and disposals that have occurred. 

Control over the custody of fixed assets is lacking, which may result in loss of fixed assets and 

misstatement of Property, Plant and Equipment in the Annual Financial Statements. 

283







The fixed asset register should have all required fields completed when acquiring new assets. The 

Chief Financial Officer should review the fixed asset register on a regular basis to ensure 

completeness. 





284


40. Internal Control - Outstanding VAT from SARS 

Audit finding 





Detail testing on VAT indicated that an amount of R20 191.83 claimed on the November/December 

2009 VAT 201 for VAT registration number 4490225440 was never received by the Municipality. 

The CFO does not perform monthly reconciliations of the VAT receivable and therefore is not 

aware of unpaid VAT 201's still owing to the Municipality and therefore does not follow 

up timeously. 

This could result in financial loss to the Municipality if management does not follow up on the 

outstanding amount of R20 191.83. 


Leadership 




The CFO should reconcile the VAT receivable per the general ledger and the VAT201's and 

receipts from SARS to identify discrepancies and either adjust the general ledger accordingly or 

follow up with SARS timeously on non-receipt or shortfalls of refunds. 





285


41. Internal Control - Property, plant and equipment: Additions recorded at the incorrect 

date on fixed asset register 

Audit finding 






During the audit of property, plant and equipment additions, it was noted that assets purchased 

were recorded on the payment date as opposed to the invoice date. 


Incorrect 

Date(08/07/2010) 

Date per 

invoice 

Upgrading of Street 257,995.11 22/07/2010 

27/08/2010 Upgrading of Street 337,935.99 19/07/2010 

27/08/2010 Upgrading of Street 441,550.62 15/07/2010 

08/07/2010 Upgrading gravel roads 267,959.29 18/06/2010 

27/09/2010 Steytlerville Upgrading of Streets 929,869.38 15/09/2010 





27/09/2010 Willowmore Upgrading of Streets 657,113.66 19/08/2010 






01/04/2011 Steytlerville Electrical 305,938.85 28/02/2011 



11/11/2010 Extension of Wanhoop 282,790.17 03/11/2010 

30/03/2011 Extension of Wanhoop 292,010.78 14/12/2010 

02/07/2011 External Streets Down 83,187.50 21/04/2011 




27/09/2010 Electrical Meters Purchased 15,268.00 27/07/2010 

28/08/2010 Kelvinator Stove 4 plates 2,631.57 27/08/2010 

28/08/2010 Small office table 964.90 27/08/2010 

28/08/2010 54 cm Television Tedelex 1,228.06 27/08/2010 

28/08/2010 Kitchen table with 4 chairs 764.91 27/08/2010 

11/02/2011 Lengths execuduct fitted 4,000.00 12/01/2011 

11/02/2011 Uplink from server to outside 2,500.00 12/01/2011 

24/02/2011 7600 Visitors arm chair Pleather 1,578.24 09/02/2011 

Total: 7,747,439.14 

286


Prior to the implementation of GRAP transactions were recorded on a payments basis and thus the 

assets were only recorded when payment was made and not when risk and rewards transferred. 

The process has not been changed since the implementation of GRAP. 

When the transitional provisions included in Directive 4 expires and the Municipality needs to be 

fully GRAP compliant depreciation might be incorrectly calculated if assets are only recorded on 

payment date. This will result in the misstatement of Property, Plant and Equipment in the Annual 







Management should ensure that all assets are recorded at the acquisition date when the transfer 

of risks and rewards takes place, which is normally invoice/delivery date, and not payment date. 

The fixed asset register should then be updated timeously and accurately. The invoice date should 

be inserted into the acquisition date field so as to facilitate the accurate calculation of depreciation 

when Directive 4 is no longer applicable. 





287

42. Internal Control - Property transfers not correct on system 

Audit finding 






We have identified the following 3 property transfers during the year which were not yet transferred 

from the seller to the buyer’s account: 

Erf 

number Suburb Seller Buyer 

Registration 

date 

109 02 Jacobs Willem Wyness Ian 2011/04/06 

Ethiopian Church Of 

2730 01 Mun Baviaans 

South Africa 2011/03/10 

101 02 

Vuuren Mathys Hendrik Janse 

Van Wilke Annet 2011/03/03 

This has an indirect impact on the Properties that are included in the property register of the 

Municipality as the Municipal property that was sold during the current year is still included on the 

property register at year-end. Therefore Municipal Properties are also misstated, but based on 

work performed in the fixed asset section, we concluded that the property register is not complete 

and that all properties do not exist, so have addressed this issue under another exception. 

According to the Income clerk she was not notified of these changes and therefore it was not 

recorded on the system. The Municipality does not keep a register with all the properties sold 

during the year and does not reconcile this to the property transfer list for the year to ensure that all 

property transfers have been updated on the system. 

Rates and Service charges are still charged to the seller’s account and not to the new owner’s 

account, which will result in the receivable being uncollected and therefore financial loss to the 



Leadership 




The Municipality should keep a register of all properties sold during the current year and perform a 

reconciliation between the register and the property transfer list at the end of the year to ensure 

that all property transfers have been processed on the system timeously. The CFO should review 

all updates to the system and agree this to the source documentation to ensure that the transfer 

was done correctly. 





288


43. Internal Control - Expenditure: Missing timesheets for overseers 

Audit finding 





control.” 

During the audit, the following supervisors’ timesheets were not attached to the payment 

documents: 

Employee Name 

Dates 

PP Nimmerhout 23 July 2010 

PP Nimmerhout 23 September 2010 

L Hannies 23 July 2010 

L Hannies 25 August 2010 

L Hannies 23 September 2010 

L Hannies 22 October 2010 

P van der Ross 23 July 2010 

P van der Ross 25 August 2010 

J Heynse 10 September 2010 

The supervisors were not aware of the requirement to complete timesheets and the payroll 

department did not enforce the requirement by insisting on complete documentation prior to 

payment. 

The supervisors may be paid having not performed the minimum two days of work per week. 

Fictitious employees may be paid resulting in a financial loss to the Municipality. 


Leadership 




The Municipality (payroll division) should not pay supervisors without an authorised timesheet 

having been submitted on a weekly basis. 





289


44. Internal Control - Expenditure: Missing casual wages identification documents 

Audit finding 





control.” 

During the audit, the following ID’s were not attached to the payment vouchers. 

Employee Name 

Date 

Randall Japies 15 October 2010 

Randall Japies 29 October 2010 

Francois Swart 25 February 2011 

Municipality staff do not inspect payment vouchers before a payment is made to ensure that all the 

necessary documentation has been attached to the payment voucher. 

Payment could be made to fictitious employees resulting in financial loss to the Municipality. 


Leadership 


execution of internal control objectives, processes and responsibilities 


The responsible person from the Municipality should ensure that all documentation is present and 

attached to a payment voucher before payments are loaded. 





290


45. Internal Control - Expenditure: Employee wage listing not signed by the employee 

Audit finding 





control.” 

During the audit, it was noted that some of the wage listings were not signed by the employees as 

proof of receipt of their pay. Some wage listings were also not signed by the Municipal 

Representative. 

Employee Name Date Amount 

Johny Heynse 10 September 2010 R1,200.00 

JIL Japhta 16 July 2010 R500.00 

V Jaer 16 July 2010 R500.00 

CJ Booysen 16 July 2010 R500.00 

SS Tarentaal 16 July 2010 R500.00 

A Swartz 16 July 2010 R500.00 

A Mapoe 16 July 2010 R500.00 

C Swartz 16 July 2010 R500.00 

CW Human 16 July 2010 R500.00 

JM Jantjies 16 July 2010 R500.00 

MS Ncwadi 16 July 2010 R500.00 

M Damons 16 July 2010 R500.00 

E Kleinbooi 16 July 2010 R500.00 

WI Japhta 16 July 2010 R500.00 

A Jaar 16 July 2010 R500.00 

M Nonkonana 16 July 2010 R500.00 

J Swartz 16 July 2010 R500.00 

J Jantjies 16 July 2010 R500.00 

DPA de Jager 16 July 2010 R500.00 

RE Hendricks 16 July 2010 R500.00 

BR Wood 16 July 2010 R500.00 

JH Kameel 1 October 2010 R240.00 

E Davids 1 October 2010 R240.00 

Wayne Potgieter 15 October 2010 R480.00 

Theodore Swarts 15 October 2010 R420.00 

Landon Human 15 October 2010 R480.00 

Jacques Buys 15 October 2010 R420.00 

Ronald Japies 15 October 2010 R480.00 

Anthony Erasmus 15 October 2010 R480.00 

Jonathan Hobanie 15 October 2010 R480.00 

Victor April 15 October 2010 R420.00 

Randall Japies 15 October 2010 R480.00 

Wayne Potgieter 29 October 2010 R480.00 

Theodore Swarts 29 October 2010 R480.00 

Landon Human 29 October 2010 R480.00 

Jacques Buys 29 October 2010 R480.00 

Ronald Japies 29 October 2010 R480.00 

Anthony Erasmus 29 October 2010 R480.00 

Jonathan Hobanie 29 October 2010 R480.00 

291


Victor April 29 October 2010 R480.00 

Randall Japies 29 October 2010 R480.00 

Doreen Abdul 29 October 2010 R270.00 

Michael Witbooi 29 October 2010 R270.00 

J Ruiters 29 October 2010 R180.00 

PD Maarman 29 October 2010 R180.00 

AR Leeuw 29 October 2010 R180.00 

HAN Galant 29 October 2010 R180.00 

AG Februarie 29 October 2010 R180.00 

JJ Steyn 29 October 2010 R360.00 

Doreen Abdul 3 December 2010 R225.00 

Michael Witbooi 3 December 2010 R225.00 

JH Kameel 3 December 2010 R300.00 

S Visser 3 December 2010 R300.00 

Clarin Swarts 15 December 2010 R480.00 

Anneline Swarts 15 December 2010 R480.00 

Donovan Petoors 22 October 2010 R600.00 

Jerome Rietels 22 October 2010 R600.00 

MF Manuel 08 October 2010 R600.00 

NV Phandle 08 October 2010 R600.00 

M Jacobs 08 October 2010 R600.00 

ZJU Warney 08 October 2010 R600.00 

FE Miggels 08 October 2010 R600.00 

J Ruiters 08 October 2010 R540.00 

PD Maarman 08 October 2010 R600.00 

J Paulse 08 October 2010 R300.00 

AR Leeuw 08 October 2010 R600.00 

HAN Galant 08 October 2010 R600.00 

AG Februarie 08 October 2010 R300.00 

JH Kameel 01 October 2010 R240.00 

E Davids 01 October 2010 R240.00 

Jessica Roman 08 October 2010 R900.00 

Maria Erasmus 08 October 2010 R900.00 

Sandra ME Wildschut 23 September 2010 R640.00 

J. Magielies 23 September 2010 R300.00 

LT Kleinbooi 23 September 2010 R300.00 

MM De Villiers 23 September 2010 R300.00 

HG Meyer 23 September 2010 R300.00 

LR Lucas 23 September 2010 R300.00 

H Kleinbooi 23 September 2010 R300.00 

H WItbooi 23 September 2010 R300.00 

KK Tarentaal 23 September 2010 R300.00 

G Roman 23 September 2010 R300.00 

P Ruiters 23 September 2010 R180.00 

KG Swarts 23 September 2010 R300.00 

JR Erasmus 23 September 2010 R300.00 

CA Maarman 23 September 2010 R300.00 

J. Kietas 23 September 2010 R180.00 

JE Petersen 23 September 2010 R180.00 

GGR Grootboom 23 September 2010 R300.00 

ADE Micheals 23 September 2010 R300.00 

JF Rautenbach 23 September 2010 R180.00 

PS Swartz 23 September 2010 R180.00 

292

GB Williams 23 September 2010 R300.00 

CC Swarts 23 September 2010 R540.00 

R Human 23 September 2010 R540.00 

AJ Rautenbach 23 September 2010 R540.00 

MM Zana 23 September 2010 R540.00 

MA Noubos 23 September 2010 R540.00 

BS Kleinbooi 23 September 2010 R540.00 

AC Miggels 23 September 2010 R540.00 

EC Magielies 23 September 2010 R540.00 

HH Witbooi 23 September 2010 R540.00 

KQ Rautenbach 23 September 2010 R540.00 

MM Umslana 23 September 2010 R540.00 

AA Swarts 23 September 2010 R540.00 

SM Mama 23 September 2010 R540.00 

P Smith 23 September 2010 R540.00 

S Bontshela 23 September 2010 R540.00 


There are no controls to ensure that the employees sign the registers when collecting their money. 

These controls are especially lacking in Steyterville, Rietbron, Wanhoop etc. 

There is a risk that employee’s collect their money and come back and say that no money was 

collected. The Municipality will have no recourse to proof that the employees did collect their 

money. Also, unclaimed wages cannot be tracked because if there are no signatures it increases 

the risk of the misappropriation of the cash. 


Leadership 




The supervisor must ensure that all employees sign the register and where employees do not sign 

the register there needs to be valid reasons obtained. 





293


46. Internal Control - Personnel expenditure: Incorrect pension fund and provident fund 

calculations 

Audit finding 





control.” 

During the audit of personnel expenditure, we recalculated provident fund and pension fund 

contributions using the formulas contained within the various pension fund and provident fund 

agreements. 

The following contributions apply: 

SALA pension fund: Employee contribution: 8.6% and council contribution: 20.78% 

Cape Joint Pension Fund: Employee contribution: 9% and council contribution: 18% 

SAMWU Provident Fund: Employee contribution: 7.5% and council contribution: 12% 

When comparing the results of our recalculations with the actual amounts deducted from 

employees we noted the following variances: 

Employee Months Employee 

Contribution 

Council 

Contributio 

n 

Recalculate 

d Employee 

contribution 

The variances were presented to the municipality but they were unable to give valid explanation for 

these variances. 

Contribution percentages are incorrectly loaded onto the SAMRAS system. 

Recalculated 

Council 

Contribution 

Total 

Difference 

F Arries Feb 2011 R2 062,11 R4 982,62 R827,23 R1 998,83 -R4 218.67 

D Mapu July 2010 R403,60 R975,20 R405,36 R810,72 -R162.72 

S Piper March 2011 R1 892,00 R4 571,60 R946,00 R2 294,60 R3 223.00 

Nappis Sept 2010 R923,67 R2 095,26 R827,23 R1 998,83 R192.87 

Nappis March 2011 R923,67 R2 095,26 R827,23 R1 998,83 R192.87 

Nappis June 2011 R923,67 R2 095,26 R827,23 R1 998,83 R192.87 

Nappies July 2010 R1 198,84 R2 896,73 R579,64 R1 400,57 R2 115.36 

A Boois April 2011 R2 104,29 R3 366,87 R721,43 R1 731,42 -R3 018.32 

R Jaer July 2010 R839,32 R1 342,92 R418,13 R1 003,50 -R760.62 

E Jordaan July 2010 R839,32 R1 342,92 R418,13 R1 003,50 -R760.62 

D Manuel August 2010 R351,82 R562,92 R337,80 R540,48 R36.46 

T 

July 2010 R351,97 R563,16 R337,80 R810,72 -R233.39 

Willemse 

Booysen July 2010 R351,97 R563,16 R337,80 R810,72 -R233.39 

GA De July 2010 R351,97 R563,16 R337,80 R540,48 R36.85 

Vos 

Buys July 2010 R509,92 R815,88 R470,78 R753,24 R101.79 

Nazima Oct 2010 R1 667,47 R2 667,96 R640,80 R1 025,28 R2 669.35 

294


The contributions will be incorrectly calculated and pension and provident contributions will be 

incorrectly paid over to the relevant funds. This could result in penalties and interest being charged 

which will not be recoverable from the employees and could therefore lead to financial losses to 

the municipality. 






The accuracy of master file amendments should be reviewed as and when changes are made. 

This would include comparing all percentages and variables loaded onto the system by SAMRAS 

to the source documents including SALGBC collective agreements, pension and provident fund 

agreements, union agreements and medical aid agreements. 

Any discrepancies should be followed up and resolved on a timely basis. Effective communication 

with the SAMRAS service provider is therefore of the utmost importance. 





295


47. Internal Control - Personnel expenditure: Medical aid contributions incorrectly 

calculated 

Audit finding 





control.” 

During the audit of personnel expenditure, we recalculated the medical aid council contribution for 

councillors using the guidelines contained within the Government Gazette: Determination of upper 

limits of salaries, allowances and benefits of different members of municipal councils dated 10 

December 2010. In addition to this, we recalculated the council contribution to medical aid for 

retired employees based on 70% of the total contribution as stipulated by the municipal policy. 

Based on the results of these recalculations we identified the following discrepancies: 

Employee Month Council Medical 

Aid Contribution 

Recalculated 

Medical Aid 

contribution 

Difference 

Fourie (retired employee) March 2011 R4,142.60 R4,319.93 -R177.33 

Loock (Mayor) Jan 2011 R1,014.00 R1,440.00 -R426.00 

Loock (Mayor) Feb 2011 R1,014.00 R1,440.00 -R426.00 

The variances were presented to the municipality but they were unable to give valid explanation for 

these variances. 

The system parameters has not been appropriately set to enable accurate calculation of medical 

aid contributions 

The contributions will be incorrectly calculated and medical aid contributions will be incorrectly paid 

over to the relevant funds. This could result in penalties and interest being charged which will not 

be recoverable from the employees and could therefore lead to financial losses to the municipality. 






The accuracy of master file amendments should be reviewed as and when changes are made. 

This would include comparing all percentages and variables loaded onto the system by SAMRAS 

to the source documents including SALGBC collective agreements, pension and provident fund 

agreements, union agreements and medical aid agreements. 

Any discrepancies should be followed up and resolved on a timely basis. Effective communication 

with the SAMRAS service provider is therefore of the utmost importance. 

296






297


48. Internal Control - Trade and other receivables: Indigent debtors applications not 

complete 

Audit finding 




effective, efficient and transparent systems of financial and risk management and internal control.” 

During the audit of indigent debtors, it was noted that the indigent applications were not signed by 

the Municipal Attesting Officer. 

Account Number 

Account Holder 

17220602 Mentoor 

19271903 Bitterhout 

20391706 Human 

20396701 Mostert 

21364107 Jansen 

31048000 Lourens 

31095002 Thart 

32803008 Daniels 

33133401 Mapoe 

33170909 Dirk 

It was also noted that the following indigent applications did not have a payslip attached to the 

application, therefore it is not possible to evaluate if the applicant qualifies or not. 



33133401 Mapoe 

It was also noted that for the following applications the indigents did not tick whether they are the 

owners of the property. 



19271903 Bitterhout 

20396701 Mostert 

32803008 Daniels 

33170909 Dirk 

There is no review process performed to ensure that all indigent applications are authorised by the 

Municipal Attesting Officer and indigent applications are not reviewed for completeness by the 

Municipal staff before applications are accepted and approved. 

There is a risk of financial loss to the Municipality based on invalid indigents being provided with 

free services due to lack of review and authorization by the Municipal Attesting Officer, the indigent 

applicant not being the owner of the property and a lack of supporting documentation. 


Leadership 



298



Indigent applications need to be reviewed by Municipal staff for completeness. The Municipal 

Attesting Officer or Council should approve all applications by means of a signature or minutes 

attached to the application. The Chief Financial Officer must review all indigents raised on the 

system to an authorized and complete application form with supporting documentation. All 

unauthorized and incomplete applications should be removed from the system. 





299


49. Internal Control - Personnel expenditure: No advertisements on file for appointments 

Audit finding 

In terms of the Recruitment and Selection Policy Procedure of the Baviaans Municipality, section 1, 

it will be necessary to advertise the post, either internally or externally by advertising in the press. 

During the audit, it was noted that there were no advertisements on file for the following two 

appointments: 


Employee Name 

153 Kruger 

163 Steyn 

The requirements of approved policies of the Municipality is not clearly communicated to staff 

resulting in non-compliance with the policies. Due to this employees in the Human Resources 

department was not aware that there needs to be a valid advertisement placed for each and every 

new post at the Municipality. Therefore advertisements are either not placed or no proof of this 

advertisement is kept on file for purposes of ensuring that there are valid advertisements placed. 

The best candidate for the job may not be attracted to apply for the vacancy as they may be 

unaware of the vacancy. Therefore the Municipality may not function to the best of its ability as the 

staff that are appointed may not the best candidates. 


Leadership 




The recruitment and selection policy should be clearly communicated to the Human Resources 

staff to ensure they adhere to all requirements of this policy during the recruitment and 

appointment process. 

This includes ensuring that advertisements are placed for all vacancies to be filled and keeping a 

copy of the advertisement as proof that the advertisement was placed. 





300


50. Internal Control - Personnel expenditure: No curriculum vitae on file for new appointees 

Audit finding 

In terms of the Recruitment and Selection Policy and Procedure, the incumbents should be 

required to complete an application form as well as forward their CV's. 

During the audit it was noted that there was no CV on file for the following employee: 


Employee Name 

162 Hannies 

The municipal staff does not ensure that employee files contain all the necessary documentation 

as per the checklist that is in the front of each employee file. 

No one at the municipality does checks to ensure that the employee files contain all the necessary 

information. 

Incomplete employee files can lead to no records being kept of the employee qualifications and 

there will be no proof that an employee who was appointed had the proper qualifications. 


Leadership 




The HR department at the municipality needs to delegate an employee to inspect all employee files 

for new appointments and ensure that all the documentation which is present on the checklist is 

present in the employee's file. 

If the documentation is not present in the file then the employee needs to be contacted and the 

necessary information needs to be obtained from the employee and put on file. 





301


51. Internal Control - Personnel expenditure: No deduction of UIF amounts from employees 

Audit finding 

The Unemployment Insurance Act and Unemployment Insurance Contributions Act apply to all 

employers and workers, but not to workers working less than 24 hours a month for an employer, 

learners, public servants; foreigners working on contract; workers who get a monthly State (old 

age) pension; or workers who only earn commission. 

During the audit it was noted that the payroll sub-ledger did not show any UIF deductions for the 

entire year, for the following employee, even though the payslip showed that UIF had been 

deducted off the salary each month: 


Employee Name 

49 Nappis 

The payroll general ledger is not reconciled to the payroll records and payments made to third 

parties on a monthly basis. 

This may result in the incorrect amount of UIF being paid over to SARS which will result in noncompliance 

with the Unemployment Insurance Act and Unemployment 

Insurance Contributions Act, which may result in interest and penalties, which will be classified as 






The CFO of the Municipality should ensure that the payroll general ledger is reconciled to the 

payroll records and payments made to third parties on a monthly basis. All discrepancies should be 

followed up and resolved timeously. 





302


52. Internal Control - Personnel expenditure: Overtime taken as off days not able to be 

verified 

Audit finding 





control.” 

The Municipality could not provide a list of employees having taken leave in lieu of overtime and 

therefore the accuracy of the conversion into leave could not be tested. 

The Municipality does not keep sufficient records of overtime which is taken in lieu of leave. 

Leave taken in lieu of overtime may not be accurately calculated, which may result in excess leave 

being taken, which is a financial loss to the Municipality. 






The Municipality should have a process in place to monitor the conversion of overtime worked into 

leave. This conversion should be reviewed for accuracy and validity. 





303


53. Internal Control - Personnel expenditure: Leave population recorded not complete 

Audit finding 





Through performing a completeness of leave recorded we have noted that not all leave forms 

completed and filed had been recorded on the leave system. 

This is due to the fact that a process is not in place whereby the leave forms are signed off by the 

payroll division, recorded on the system and filed methodically. The Municipality does not perform 

a regular reconciliation between the leave forms and the leave recorded on the system. 

This would lead to incorrect leave balances being recorded for each employee who will result in a 

financial loss to the Municipality due to excessive leave being taken or paid out to the employees. 


Leadership 




The HR department should authorized all leave forms, record the leave taken and file the forms 

methodically. The leave forms should be sequentially numbered to keep track of any unrecorded 

leave forms. Regular reconciliations should be performed between leave forms submitted and 

leave recorded on the system. 





304


54. Internal Control - Personnel expenditure: No detailed review done on payroll on a 

monthly basis 

Audit finding 





When inspecting the payroll run for August 2010 and November 2010 we noted that there is no 

evidence to signify evidence of the review of the payroll run. Upon enquiry from the Chief Financial 

Officer, he confirmed that there is no detailed review done on the monthly payroll run to compare it 

to the previous month or to confirm that it is reasonable and that all new appointments are included 

and all terminations have been removed. 

Such duties have not been communicated to anyone or been assigned to anyone specifically and 

thus due to this poor segregation of duties this overall review of payroll has not been done on a 

monthly basis. 

Incorrect payroll run can be approved unknowingly and thus result in inaccurate amounts being 

reflected as Employee Costs expensed by the Municipality. 





The Chief Financial Officer should perform a detailed review of the monthly payroll run by 

comparing the current month to the previous month to confirm that it is reasonable and that all new 

appointments are included and all terminations have been removed. 

Each manager should also certify that all employees included on the payroll run for his department 

were in employment for that specific month. 





305


55. Internal Control - Revenue: No agreement for income from agency services 

Audit finding 





We could not obtain any agreement to vouch the completeness of Income received from Agency 

Services. 

There is a lack of controls in place between the district municipality and Baviaans Municipality 

regarding business transactions. 

Income from Agency Services which is recorded as such might not be complete. 


Leadership 




The Municipality should obtain agreements with agency companies to specify the terms and 

conditions of the business arrangement. 





306

56. Internal Control - Indigent usage of water not monitored adequately 

Audit finding 






Indigents are entitled to a free amount of water usage up to 8 kilolitres. We noted that the only 

mechanism to monitor the water usage of indigents is to charge them for the water usage above 8 

kilolitres. This is not an adequate control due to the fact that they are also included in the provision 

for doubtful debts and are therefore not charge for this excessive water usage. 

The Municipality has not implemented controls to limit possible losses to the Municipality. 

The over usage of water by indigent debtors may result in a financial loss to the Municipality as the 

amount will probably not be recovered. 


Leadership 




The Municipality should implement controls to monitor the water usage of indigents to prevent over 

usage and therefore a financial loss to the Municipality. 





307


57. Internal Control - Property, plant and equipment: Completeness of capital grant 

expenditure 

Audit finding 






During the audit of capital grant expenditure and projects in progress, the municipality could not 

provide detailed schedules for all capital projects undertaken and completed during the year to 

enable the audit team to identify whether all transactions relating to the specific project was 

appropriately capitalised and included in the fixed asset register. The following is a comparison 

between the capital grant expenditure for the year and the detailed project information we could 

obtain from the Municipality: 

Grant 

Capital Grant 

Expenditure 

Project 

schedules 

Variance 

Municipal Infrastructure Grant R10 134 962.72 R7 013 732.80 R3 121 299 

Water Conservation & Demand R392 055.58 R446 943.35 -R54 887.77 

Wireless Backbone - Cacadu R263 157.89 - R263 157.89 

Finance Management Grant R74 491.45 - R74 491.45 

Municipal Systems Improvement 

Grant 

R137 704.55 - R137 704.55 

Total: 3 541 696.04 

Proper record of projects has not been kept by the municipality. 

Not all capital grant expenditure incurred might be capitalised. 


Leadership 




All transactions relating to a specific project should be recorded on a detailed project plan. These 

transactions should be reconciled to the capital grant expenditure per the general ledger and fixed 

asset register on a monthly basis to identify any transactions which should have been capitalised 

but was not. 





308


COMPLIANCE 

58. Compliance - Section 59 of the Municipal Systems Act: No delegation of authority 

document 

Audit finding 

Per section 59 of the MFMA, the following is required: 

(1) The powers and duties assigned in terms of this Act to the mayor of a municipality, may - 

(a) in the case of the municipality which have an executive mayor referred to in section 55 of the 

Municipal Structures Act, be delegated by the executive mayor in terms of section 60(1) of that 

Act to another member of the municipality's mayoral committee. 

(2) A delegation in terms of subsection (1) - 

(a) must be in writing, 

(b) is subject to any limitations or conditions that the executive mayor or council, as the case may 

be, may impose, and 

(c) does not divest the mayor of the responsibility concerning the exercise of the delegated power 

of the performance of the delegated duty. 

The delegations register had not been finalised before year-end. 

A draft version was however before council in the current year, but was rejected by council. The 

necessary changes have not yet been made. 

The delegations register was not given appropriate priority during the financial year in order for it to 

be finalised before year-end. 

As a result, employees may not act with the appropriate authority or unauthorised actions may be 

performed. 

Employees may not take responsibility for functions that are associated with their post levels. 

Duties may not be performed due to the unclear definition thereof. 

Non-compliance with Section 59 of the MFMA. 


Leadership 




The delegation register should be compiled and finalised to detail an appropriate system for 

delegation of all duties and functions within the municipality’s administration. This register should 

be approved by Council in a Council meeting. 





309


59. Compliance - Other financial assets: Non compliance with cash and investing policy 

Audit finding 

In terms of MFMA section 13(2) the municipality must have an appropriate and effective cash 

management policy. 

In terms of paragraph 5.4 of the approved banking and investment policy, the chief financial officer 

should obtain quotations from at least three financial institutions. The quotations shall be made 

telephonically and the chief financial officer shall, keep a register of name of institution, name of 

person contacted, relevant terms and rates offered by institution. Once an investment is selected, 

written confirmation of telephonic confirmation should be obtained. Once the investment is made, 

written confirmation should be received from bank. 

Based on our understanding of the investment process it appears that all surplus funds are 

transferred to existing investment accounts without obtaining quotations from at least three 

financial institutions. Per inquiries made to the Expenditure clerk, it was noted that when 

investments are made by first obtaining three telephonic quotations, instructions to make 

investments are given verbally by the CFO. We inspected an investment of R300 000 on 14 

September 2010, however no written confirmations could be obtained for this. The CFO did not 

make any formal instructions in writing per regulations in this regard 

Management has not instituted controls in place to ensure that the Cash and Investing policy is 

complied with. 

Non-compliance with the banking and investment policy of the Municipality could result in 

ineffective cash management and possible financial loss to the Municipality. 


Leadership 




The Chief Financial Officer should obtain written quotations from at least three financial institutions 

before deciding on where to invest surplus funds of the Municipality. 





310


60. Compliance - Personnel expenditure: Performance measurement only at management 

level 

Audit finding 

The Municipal Systems Act 32 of 2000 states the following: 

67. Human resource development - (1) A municipality, in accordance with applicable law and 

subject to any applicable collective agreement, must develop and adopt appropriate systems and 

procedures to ensure fair, efficient, effective and transparent personnel administration, including - 

(d) the monitoring, measuring and evaluating of performance of staff. 

During the evaluation of the performance appraisal systems in place it was noted that key 

performance indicators are only set and evaluated at management level and that no key 

performance indicators are set and evaluated for lower level staff. 

The performance management system has only been rolled out to management level. 

This could result in financial loss to the municipality, inadequate service delivery and inaccurate 

financial reporting as under performance of staff will not be determined timeously. 

The municipality will also not be able to assess individuals for promotion and there is no incentive 

to provide a level of performance which meets or exceeds expectation. 


Leadership 




Management should develop a performance appraisal system with key performance indicators that 

meet the SMART criteria and are linked to the relevant employee’s duties and responsibilities. 

Evaluations should be done at least annually and should be used to provide employees with 

appropriate feedback. Counselling may then be provided on their job performance, suggestions for 

improvements, identification of individuals who may be eligible for promotion should vacancies 

exist and to reward employees for meeting or exceeding expected levels of performance. 

The importance of integrity and ethical values should be reflected in performance appraisal criteria. 





311


61. Compliance - SCM: No controls to ensure adherence to SCM policy 

Audit finding 

According to Municipal Supply Chain Management Regulations section 14: 

14. Lists of accredited prospective providers – (1) A supply chain management policy must – 

(a) instruct the accounting officer – 

(i) 

(ii) 

to keep a list of accredited prospective providers of goods and services that must be used for 

the procurement requirements of the municipality or municipal entity through written or verbal 

quotations and formal written price quotations; and 

at least once a year through newspapers commonly circulating locally, the website of the 

municipality or municipal entity and any other appropriate ways, to invite prospective providers 

of goods and services to apply for evaluation and listing as accredited prospective providers; 

Whilst obtaining an understanding of the controls around compliance with SCM policy, it was noted 

that there are no controls to verify that the Municipality only purchases from suppliers included on 

the approved supplier database in accordance with the Supply Chain Management Policy. 

Management does not place enough effort into independent reviewing and controls to prevent 


This will result in non-compliance with SCM policy and will subsequently lead to irregular 

expenditure incurred by municipality. 


Leadership 




Management should implement controls to confirm compliance with the Supply Chain Management 

Policy and should communicate these to departments to raise awareness of controls. 



Baviaans Municipality has a supplier database and it is used for procuring goods, however it is 

very difficult for this Municipality to use only the database as most of the suppliers are not from the 

Baviaans area. 



312


62. Compliance - Personnel expenditure: Non compliance with section 10 of Basic 

Conditions of Employment Act 

Audit finding 

In terms of section 10(b) of the Basic Conditions of Employment Act, an employer may not require 

or permit an employee to work more than 10 hours of overtime per week. 

We could not identify any controls implemented by the municipality to confirm that employees do 

not work overtime in excess of what is permitted in terms of legislation. 

Management did not have any controls in place to mitigate and detect any employees who have 

worked more than 10 hours overtime per week. 

Non-compliance with section 10 of Basic Conditions of Employment Act. This could result in union 

pressures and a claim against the municipality by employees. This could damage the reputation of 

the municipality and result in financial loss. 


Leadership 




On a daily basis, Foreman's of each department should draw schedules containing employees and 

overtime worked for the week. These should be monitored daily by Foreman's to avoid employees 

working more than 10 hours overtime per week. Manager: Corporate Services should as part of 

reviewing overtime, verify that no employee worked more than 10 hours overtime in a week. 





313


63. Compliance - Personnel expenditure: Non compliance with Section 3.1.4 of the SALBC 

Main Collective Agreement 

Audit finding 

In terms of Section 3.1.4 of the SALBC Main Collective Agreement the accumulated leave of 

employees should not exceed the maximum of forty-eight (48) days. 

Whilst obtaining an understanding of the process in place to verify that accumulated leave of 

employees did not exceed the maximum of 48 days the following discrepancies were noted. Upon 

inspection of the 31 January 2011 leave report, the following employees had leave balances in 

excess of 48 days: 

Employee number Employee Name Annual leave balance 

11 E.L Le Grange 71 

20 F. De Jager 56 

24 F. Stolls 76 

32 P. Golozana 58 

43 M.A Lotter 62 

47 J. Basson 58 

52 V. Sampies 60 

55 V. Napisi 70 



This will result in non-compliance with section 3.1.4 of the SALBC Main Collective Agreement. 

This will result in the overstatement of the leave provision and fruitless and wasteful expenditure if 

the employee is paid out the leave. 


Leadership 




Proper controls should be instituted by management to identify when employees are approaching 

an accumulated leave balance of 48 days. Leave should then be scheduled timeously for such 

employees to ensure compliance with section 3.1.4 of the SALBC Main Collective Agreement. 





314

64. Compliance - Risk assessment not performed annually 

Audit finding 


The internal audit activity's plan of engagements must be based on a documented risk 

assessment, undertaken at least annually. The input of senior management and the board must be 

considered in the process of the IPPF standards, page 9:2010.A1. 

In terms of ssection (27)(2) of the Treasury Regulations states that the accounting authority must 

ensure that a risk assessment is conducted regularly so as to identify emerging risks of the public 

entity. A risk management strategy, which must include a fraud prevention plan, must be used to 

direct internal audit effort and priority and to determine the skills required of managers and staff to 

improve controls and to manage these risks. 

A risk assessment is not performed annually by the Municipality. The latest risk assessment was 

performed on 18 September 2009. The Municipality also do not have a risk management policy in 

place. 

The fraud prevention policy is considered to be outdated as it was last updated and approved 

2006/07 

There were no changes from the prior year risk assessment. 

These risks could impact the ability of the Municipality to fulfil its constitutional mandate and to 

comply with applicable laws and regulations. 

Furthermore, this could result in financial loss, unnecessary litigation and impaired service delivery. 


Governance 





Management should improve the effectiveness of the risk assessment process by 

performing/reassessing the risk assessment annually and implement action plans to address these 

risks. 



Arrangements have already been made with the internal auditor to deal with risk assessment. 



315


65. Compliance - Personnel expenditure: No controls to ensure compliance with Section 

3.1.2 of the SALBC Main Collective A 

Audit finding 

In terms of Section 3.1.2 of the SALBC Main Collective Agreement an employee is required to take 

leave within each leave cycle as follows: 

3.1.2.1 A five- (5) day worker shall take a minimum of sixteen (16) days leave; and 

3.1.2.2 A six- (6) day worker shall take a minimum of nineteen (19) days leave. 

Whilst obtaining an understanding of the process in place to verify that employees take the 

minimum required leave per annum we were unable to identify any control to mitigate the risk of 

non-compliance with section 3.1.2 of the SALBC Main Collective Agreement. 



Non-compliance with section 3.1.2 of the SALBC Main Collective Agreement which could result in 

union pressure and claims against the municipality. This could do harm to the reputation of the 

municipality and result in financial loss. Employees might also be overworked which directly 

impacts on service delivery and the overall control environment. 


Leadership 




Proper controls should be implemented by management to identify where employees have not 

taken the minimum required leave days within the leave cycle yet timeously. 

Leave should then be scheduled for such employees to ensure compliance with section 3.1.2 of 

the SALBC Main Collective Agreement. 





316


66. Compliance - Personnel expenditure: Leave days taken exceed the available leave 

balance 

Audit finding 





During the obtaining understanding phase for payroll, it was noted that upon inspection of the 

31 January 2011 leave report, the following employee had a negative leave balances: 

Employee number Employee name Annual leave balance 

23 J. Coetzee -9 

Management did not have any control procedures in place during the year to ensure that they 

comply with laws and regulation relating to leave taken. 

This will result in non-compliance with Baviaans municipality leave policy and with SALBC Main 

Collective Agreement. This will further cause financial loss to the municipality if the employee 

leaves the employ which may result in fruitless and wasteful expenditure being incurred. 


Leadership 




The Foreman and Manager corporate services should ensure prior to authorisation that employees 

have sufficient leave per the leave records according to the leave request form. 





317


67. Compliance - Personnel expenditure: Non compliance with Basic Conditions of 

Employment Act par 34A(2) 

Audit finding 

Deductions should be paid over to the benefit fund within 7 days of the deduction taking place as 

required by Basic Conditions of Employment Act (BCOE) Act par 34A(2). 

Whilst obtaining an understanding of compliance of the Basic Conditions of Employment Act 

(BCOE) we could not identify any controls to verify that deductions are paid over to the benefit fund 

within 7 days of the deduction taking place to comply with BCOE Act pa 34A(2). 

Management has not put controls in place to ensure that auditee complies with Basic Conditions 

of Employment Act par 34A(2). 

This will result in non-compliance with BCOE Act par 34A(2) and may result in an interest cost 

which will be considered fruitless and wasteful. 


Leadership 




Expenditure: Clerk should pay all deductions within 7 days of month end. Accountant: Expenditure 

should as part of review procedures for payment ensure that all benefit fund deductions are paid 

within 7 days. 





318


68. Compliance - Personnel expenditure: Non-compliance with section 5 of the 

Unemployment Contributions Act 

Audit finding 

Section 5 of the Unemployment Insurance Contributions Act 2002 (Act No.4 of 2002) requires that 

all councillors should contribute to the Unemployment Insurance Fund. 

Based on the audit procedures performed on the compliance of the public office bearers we noted 

that none of the councillors contributed to the Unemployment Insurance Fund as required by 

section 5 of the Unemployment Insurance Contributions Act 2002 (Act No.4 of 2002) in the current 

financial year. This was confirmed through our detail testing on the following Councillors: 

EL Loock 

J Booysen 

P Daniels 

Management was unaware of the requirement. 

Non-compliance with section 5 of the Unemployment Insurance Contributions act, which may result 

in interest and penalties, and therefore fruitless and wasteful expenditure. 


Leadership 




We recommend that the payroll department should ensure that all councillors do contribute to the 

Unemployment Insurance Fund as required by section 5 of the Unemployment Insurance 

Contributions Act 2002. The payroll system should be set up so as to make UIF a mandatory 

deduction. 





319

69. Compliance - SCM: Non compliance with SCM regulations 

Audit finding 

1. No formal training for SCM staff 


In terms of SCM Regulation 8 the training of officials involved in implementing a supply chain 

management policy should be in accordance with any Treasury guidelines for SCM training 

2. No formal delegation forms for SCM staff 

In terms of MSA sec 51(h), roles and responsibilities should be clearly assigned for the 

management and co-ordination of the SCM unit. 

3. Approving of a tender other than the tender recommended in the normal course of 

implementing the SCM policy 

MFMA sec 114(1) requires that if a tender other than the one recommended in the normal course 

of implementing the SCM policy of a municipality or municipal entity is approved, the accounting 

officer of the Municipality must in writing, notifies the Auditor-General, the relevant provincial 

treasury and the National Treasury and, in the case of a municipal entity, also the parent 

municipality, of the reasons for deviating from such recommendation. 

4. No report submitted on the implementation of the SCM policy 

In terms of SCM Reg 6(2)(a) the accounting officer has to submit a report on the implementation of 

the SCM policy of the municipality to the council within 30 days after financial year-end. These 

reports must be made public in accordance with section 21A of the Municipal systems Act. 

5. Declaration of interest by SCM officials not recorded 

SCM Reg 26(3)(a) states that declaration of interests by SCM officials and role players should 

be recorded in a register kept by the accounting officer. 

6. No controls in place to declare rewards, gifts favours, hospitality or other benefit promised, 

offered or granted to that person or any close family member, partner or associate of that 

person 

SCM Reg 46(2)(e) requires that Controls should be implemented for SCM officials or other role 

players to declare any reward, gift, favour, hospitality or other benefit promised , offered or granted 

to that person or to any close family member, partner or associate of that person. 

7. No declarations of interest made by the Accounting Officer to the Mayor or Council 

SCM Reg 22(3)(b) requires that declaration of interests by the accounting officer should be made 

to the Mayor of the Municipality or council of the Municipal entity, who then ensure that they are 

recorded in the register. 

8. No risk assessment of the SCM system was done that addressed the procedures specified in 

Regulation 41 (2) 

SCM Reg 41(1) and (2) requires the municipality to have an effective system of risk 

management for the identification, consideration and avoidance of potential risks in the supply 

chain system. 

A Risk assessment of the SCM system must be done and the processes should include: 

320


a) the identification of risks on a case by case basis 

b) the allocation of risks to the party best suited to manage such risk 

c) acceptance of the cost of the risk where the cost of transferring the risk is greater than that of 

retaining it. 

d) the management of risks in a pro-active manner and the provision of adequate cover for 

residual risks; 

e) the assignment of relative risks to the contracting parties through clear and unambiguous 

contract documentation. 

9. No system in place to allow aggrieved persons to lodge complaints for decisions taken by the 


SCM Reg 49 requires the Municipality to allow persons aggrieved by the decisions or actions taken 

by the Municipality to lodge within 14 days of the decision or action, a written objection or 

complaint to the municipality against the decision or action. 

10. Per SCM reg. 18(b), buyers/procurement staff is aware of the rotation policy 


The municipal SCM staff did not have any formal training during the current year. This matter 

was raised in the previous year as an exception, however no progress has been made in that 

regard. 


The terms of MSA sec 51(h) have not been complied with as roles and responsibilities have not 

been clearly assigned for the management and coordination of SCM unit. There were no formal 

delegation forms issued to staff to ensure that roles are clearly understood and it was further noted 

that although there were job descriptions for the rest of the staff, there was no job description for 

the SCM Clerk. 



Terms of MFMA sec 114(1) was not complied with as the MM and council awarded a tender to 

Solly Levy against the recommendations of the bid evaluation and adjudication committee. A 

written report notifying the Auditor General and Provincial Treasury with reasons for deviating from 

such recommendations was not sent by the Municipal Manager. 


It was noted per inquiries held with the Municipal Manager that no report on the implementation of 

the SCM policy of the Municipality was sent to council within 30 days after year-end. The reports 

were not made public per section 21A of the Municipal systems Act. 


Per enquiry from the Municipal Manager, it was noted that there is not a register of declaration of 

interest by Supply Chain Management officials as required by SCM Reg 26(3)(a). 

321




person 

Per enquiry from the Municipal Manager, it was noted that there is no register of declaration of 

benefits and gifts for SCM officials and other role players of the Municipality as required by SCM 

Reg 46(2)(e). 

7. No declarations of interest made by the Accounting Officer to the Mayor or Council 

It was noted that the declaration of interests by the accounting officer are not made to the Mayor of 

the Municipality as required by SCM Reg 22(3)(b) 



A Risk assessment of the SCM system was not done during the year to address specific risks 

associated with SCM. Although there are monthly Working Group Meetings, which focus on 

findings, raised during previous internal and external audit reports this is not considered sufficient, 

as it does not deal with the following factors as required by SCM Reg 41(2): 

(a) the identification of risks on a case by case basis 

(b) the allocation of risks to the party best suited to manage such risk 

(c) acceptance of the cost of the risk where the cost of transferring the risk is greater than that of 

retaining it. 

(d) the management of risks in a pro-active manner and the provision of adequate cover for 

residual risks; 

(e) the assignment of relative risks to the contracting parties through clear and unambiguous 




We inspected advertisement for tender number BLM 2010/11/012 and confirmed that there was no 

mention of bidders rights to lodge complaints within 14 days of the decision. 

10. Staff are not aware of how to implement the rotation system of suppliers per SCM policy 

although the policy states that they should. 

11. Fraud prevention plan 

Per inspection of the fraud prevention plan, it was noted that it did not include specific measures 

for preventing and detecting fraud in the procurement process. 

12. Internal audit 

Internal audit did not evaluate controls, processes and compliance with laws and regulations with 

regards to SCM unit. 


SCM regulations and laws are not thoroughly followed and implemented. 

Management do not place emphasis on controls to ensure that SCM regulations are complied 

with. 


322




with. 





with. 




with. 




with. 



person 



with. 

7. No declarations of interest made by the Accounting Officer to the Mayor or Council SCM 

regulations and laws are not thoroughly followed and implemented. 


with. 





with. 




323



with. 

This will cause non-compliance with provisions of SCM regulations and policy. 


Leadership 



Governance 





1. There should be regular formal training of SCM officials to comply with requirements of SCM 

Reg 8 and Min Competency Reg 10. 

2. On an annual basis, the Chief Financial Officer should issue written delegations 

to SCM employees to clearly identify which duties should be performed by employees and to 

avoid employees performing incompatible duties. In addition, each employee should have a 

job description which should be in line with the written delegations by the CFO. Powers should 

be delegated using the following criteria: placing of orders, approval of payments, signing of 

contracts and approval of deviations. 

3. When a tender either than the one recommended by the SCM committees is chosen. the 

Accounting Officer of the municipality should sent a written report to the AG, 

relevant provincial treasury and National Treasury which should include reasons for deviating 

from such a recommendation. 

4. The accounting officer should submit a report on the implementation of the SCM policy of the 

Municipality to council within 30 days after financial year-end. In addition to this, the report 

must be made public. 

5. The Municipal Manager should keep a register of interest by all SCM officials. The 

register should be updated at least annually or each time the interests of a supply chain 

management official changes. This register should be signed by each individual SCM official to 

comply with SCM Reg 26(3)(a). 

6. The Municipal Manager should keep a register of any reward, gift, favour, hospitality or other 

benefit promised, offered or granted to any SCM officials, close family member, partner or 

associate of that person as well as other role players. The register should be signed monthly 

by all SCM officials. 

7. The Mayor should keep a register of all declarations of interest by the Municipal Manager that 

should be signed by both the Mayor and the Municipal Manager in order to comply with 

requirements of SCM Reg 22(3)(b) 

8. The Municipality should perform a formal risk assessment process of SCM related risks on an 

annual basis. This assessment process should include: 

324


(a) the identification of risks on a case by case basis. 

(b) the allocation of risks to the party best suited to manage such risk. 

(c) acceptance of the cost of the risks where the cost of transferring the risk is greater than 

that of retaining it. 

(d) the management of risks in a pro-active manner and the provision of adequate cover for 

residual risks. 

(e) the assignment of relative risks to the contracting parties through clear and unambiguous 


9. When placing advertisements for tenders, the Chief Accountant should ensure that it is clearly 

stated per SCM Reg 49 that "SCM policy allows persons aggrieved by the decisions or actions 

taken by the Municipality in the implementation of its SCM system, to lodge within 14 days of 

the decision or action a written report objection or complaint to the Municipality against the 

decision or action". 

10. The fraud prevention plan should be revised to include specific measure for preventing and 

detecting fraud in the procurement process, this should be done in consultation with the 

internal audit committee. The plan should be approved by council. 

11. Internal audit should do a formal risk assessment annually and evaluate controls, processes 

and compliance with laws and regulations with regards to SCM unit. 





325


70. Compliance - There are no UIF deductions for contract employees in EPWP project 

Audit finding 

Per the provision of Section 6(1) of UIC Act, employers are required to pay over UIF on all 

employees working more than 1 month. 

During the obtaining an understanding of EPWP wages process, it was noted that the following 

employees, Jean Hannie, Jannie Steyn, Jannie Classen and Piet van der Ross were employed by 

the municipality per employment contracts, however the municipality did not register them for UIF 

and therefore no deduction was made and paid over to SARS. 

This is caused by lack of emphasis by placed by management to ensure that laws and regulations 

are complied with specifically Section 6(1) of UIC Act. 

The Municipality is not complying with laws and regulations relating to Section 6(1) of UIC Act. This 

may result in penalties and interest and therefore a loss of funds to the Municipality, resulting in 



Leadership 




The Manager: Corporate Services should register all contracted employees for UIF if they work for 

more than 24 hours per month and ensure the deduction is made and paid over to SARS. 





326


71. Compliance - Personnel expenditure: PAYE calculations are inaccurate 

Audit finding 

In terms of the Income Tax Act No. 58 of 1962, Fourth Schedule, extracts from paragraph 2(1): 

"Every (a) employer who is a resident; or (b) representative employer in the case of any employer 

who is not a resident... who pays or becomes liable to pay any amount by way of remuneration to 

any employee shall... deduct or withhold from that amount... by way of employees' tax an amount... 

in respect of the liability for normal tax of that employee." 

and as per paragraph 6(1): 

"If an employer fails to pay any amount of employees' tax for which he is liable within the period... shall, pay 

a penalty equal to ten per cent." 

The following differences were found in the total PAYE paid in respect of the following employees: 

Employee Name 

Client Recalculated Differences 

Calculation 

NM De Kella R7 734,92 R7 399,82 (R335,10) 

H Japhta R10 288,70 R10 417,35 R128,65 

A Boois R19 989,60 R20 642,38 R652,78 

R Jaer R4 193,93 R4 773,00 R579,07 

F De Jager R20 371,27 R20 595,16 R223,89 

E Jordaan R3 911,32 R4 555,19 R643,87 

F Stolls R13 441,74 R14 404,79 R963,05 

S Mentoor R174,75 R523,83 R349,08 

E Petoors R1 335,24 R1 756,55 R421,31 

K Jordaan R1 127.41 R1 458,72 R331,31 

P Golozana R13 753,21 R14 784,23 R1 031,02 

D Manuel R907,66 R1 445,34 R537,68 

J Lammert R1 194,88 R1 815,31 R620,43 

J Tarentaal (EN 41) R563,23 R835,22 R271,99 

J Napisi R20 028,97 R18 971,53 (R1 057,44) 

J Tarentaal (EN 63) R174,08 R0,00 (R174,08) 

B Tarentaal R870,99 R622,23 (R248,76) 

B Samson R295,69 R0,00 (R295,69) 

F Arries R19 544,83 R18 521,90 (R1 022,93) 

E Swartbooi R2 365,71 R2 062,50 (R303,21) 

T Willemse R1 479,67 R2 140,01 R660,34 

GA De Vos R1 371,49 R1 963,27 R591,78 

D Mapu ( EN 86) R80,23 R0,00 (R80,23) 

M Van Vuuren R38 203,04 R36 841,28 (R1 361,76) 

HJ Manuel R994,23 R1 510,23 R516 

IB Orsmond R35 464,47 R36 528,61 R1 064,14 

STS Cornelius R3 611,32 R4 255,18 R643,86 

AF Gertze R3 790,78 R3 531,51 (R259,27) 

D Booysen R2 977,34 R2 642,26 (R335,08) 

L Strydom R0,00 R42,01 R42,01 

AC Brown R5 457,71 R4 294,04 (R1 163,66) 

AE Jonas R5 060,49 R4751,82 (R308,67) 

DJ Kruger R25 326,85 R25 992,52 R665.67 

S Piper R13 275,07 R14 934,82 R1659,75 

M Mvulane R420,05 R495,68 R75,63 

ED Daniels R157,98 R343,38 R185,40 

327


Employee Name 

Client Recalculated Differences 

Calculation 

Hendricks ( EN 4 ) R20 051,59 R18 743,81 R1 307,78 

Buys R4 203,72 R4 197,73 (R5,99) 

Nazima R10 400,56 R12 325,60 R1 925,04 

Metembo R11 047,35 R12 294,14 R1 246,79 

Davids R11 518,22 R11 399,10 R119,12 

Le Grange R8 316,79 R8 993,98 R677,19 

Booysen ( EN 36) R0,00 R13,27 R13,27 

Basson R10 383,23 R11 401,75 R1 018,52 

Nappis R11 128,61 R9 842,48 R1 286,12 

Strydom R16 506,36 R16 060,52 (R445,84) 

Fourie ( EN 95) R47 919,33 R46 846,83 (R1 072,50) 

Draai R8 615,99 R8 280,90 (R335,09) 

Hendricks ( EN 97) R0,00 R191,76 R191,76 

Samuels R3 631,83 R4 221,60 R589,77 

Whitebooi ( EN 106) R2 579,63 R3 169,39 R589,76 

Maart R21 830,78 R20 760,85 (R1 069,92) 

Zaayman R21 830,78 R20 760,86 (R1 069,92) 

Daniels ( EN 117) R31 854,02 R31 147,00 (R707,02) 

Mapoe ( EN 125) R0,00 R238,12 R238,12 

Theunisse R7 820,06 R8 409,83 R589,77 

Rautenbach R607,78 R264,85 (R342,93) 

Tsili R41 422,03 R40 349,53 (R1 072,50) 

Terblanche ( EN138) R36 454,43 R35 392,19 (R1 062,24) 

Nortje ( EN 139 ) R3 185,62 R2 850,54 (R335,08) 

Barnard R11 916,21 R11 581,13 (R335,09) 

Terblanche (EN 145) R5 121,48 R4 727,64 (R393,84) 

Henderson R5 358,40 R5 023,32 (R335,08) 

Mbuqe ( EN 148 ) R31 770,68 R31 063,67 (R707,01) 

Japhta ( EN 149 ) R4 739,32 R4 404,23 (R335,09) 

Natal R1 412,81 R1023,00 (R389,81) 

Adams R6 483,99 R6279,41 (R204,58) 

Sampies R13 493,09 R16 784,62 R3291,53 

Nappies ( EN 54 ) R3 102,63 R4083,10 R980,47 

Uithaler ( EN 91 ) R0,00 R67,06 R67,06 

Booysen ( EN 118 ) R2 800,06 R3700,14 R900.08 

Lotter R117 617,13 R121 197,94 R3 580,81 

Arends R104 414,8 R104 955,60 R540,80 

Doyle R89 839,43 R98 002,47 R8 163,04 

De Beer ( EN 104 ) R100 614,78 R103 192,12 R2 577,34 

Vumazonke R133 044,22 R135 614,64 R2 570.42 

Loock R64 809,16 R39801,79 (R25007,37) 

Booysen ( EN 1009 ) R6 507,14 R13702,66 R7195,52 

Daniels ( EN 1007 ) R31 653,16 R11852,61 (R19 800,55) 

Thus, the extrapolated amount for disagreements between PAYE calculation and auditors work 

done is R60 152,90. 

The pay as you earn calculation is automated. The software used may not be programmed 

correctly / to incorporate changes in tax rates / changes in tax laws. 

328


Underpayment of PAYE to SARS is a risk to the municipality, this constitutes non-compliance with 

the provisions of the Income Tax Act and the Municipality may be held liable for penalties. 

The misstatements to PAYE may be corrected upon completion and submission of tax returns to 

SARS by each individual employee but as these employees are not likely to submit a tax return 

they will be under/overpaid. 

As total cost to company is not misstated, no amount was taken to the summary of misstatements. 


Leadership 




Management should review the PAYE calculations regularly to ensure the accuracy of the 

calculation on the system. If management is not capable of this function a specialist should be 

consulted to monitor this function. Management should consult with SAMRAS consultants 

immediately to assess the discrepancies found during the audit. 



Management has no control over PAYE deductions. This function is between SARS and SAMRAS. 

The deduction tables are sent directly to SAMRAS which put it onto the payroll system. This finding 

will be sent to SAMRAS to investigate. 



329


72. Compliance - Improper budgeting 

Audit finding 

MFMA section 17 states that an annual budget of a municipality must be a schedule in the 

prescribed format— 

(a) setting out realistically anticipated revenue for the budget year from each revenue source; 

(b) appropriating expenditure for the budget year under the different votes of the municipality; 

(c) setting out indicative revenue per revenue source and projected expenditure by vote for the 

two financial years following the budget year; 

(d) setting out— 

(i) estimated revenue and expenditure by vote for the current year; and 

(ii) actual revenue and expenditure by vote for the financial year preceding the current year 

Upon risk identification procedures performed we verified that the Municipality budgeted R200 000 

for debt impairment, whereas the actual debt impairment of the current financial year amounted 

to R883 862. As per discussion with the Chief Financial Officer we verified that the Municipality 

only budgeted for the actual write off for irrecoverable accounts and did not budget for the 

provision for doubtful debts. 

The Municipality did not budget properly for revenue in the current year as the adjustment budget 

is R2 188 416 below the actual revenue. 

The Municipality did not take into account journals that will be processed during the financial 

statement close process when the adjustment budget was compiled. The Municipality did not place 

enough emphasis on considering the revenue that will be received in the current year. 

This could lead to inefficiencies within the municipality as well as improper monitoring of 

expenditure and income on a monthly basis. 


Leadership 




The Municipality should ensure that all types of expenditure are taken into consideration when the 

budget is compiled, this includes all the financial statement close process journals processed. They 

should also ensure that the revenue budget is based on the known streams of revenue and the 

increases expected in the different streams. 





330


73. Compliance - Personnel expenditure: Non-compliance with section 3.1.1 of SALBC 

minimum leave provided 

Audit finding 

Section 3.1.1 of Part B of the SALBC Main Collective Agreement requires that an employer shall 

grant an employee the following annual leave in a leave: 

• 3.1.1.1 Twenty-four (24) days for a five- (5) day worker; and 

• 3.1.1.2 Twenty-seven (27) days for a six- (6) day worker. 

Detail testing on employee cost indicated that the leave entitlement of 24 days as per section 3.1.1 

of the SALBC do not correspond to the leave entitlement per leave system for numerous 

employees, refer below: 

Employee Employee Month 

Leave per Recalculated 

number name 

appointed system leave 

139 Nortje Not appointed in 22 24 

2010/2011 

140 Booysen Not appointed in 22 24 

2010/2011 

141 Korkee Not appointed in 18 24 

2010/2011 

142 Reyners Not appointed in 18 24 

2010/2011 

143 Strydom Not appointed in 16 24 

2010/2011 

145 Terblanche Not appointed in 10 24 

2010/2011 

150 Smit Not appointed in 13 24 

2010/2011 

151 Brown August 2011 20 22 

152 Jonas August 2011 11 22 

153 Kruger September 2011 22 20 

154 Roman October 2011 11 18 

155 Natal November 2011 10 16 

156 Piper December 2011 12 14 

158 Reyners December 2011 9 14 

159 Daniels December 2011 11 14 

Appointment dates for newly appointed employees was not considered upon calculation of the 

leave provision. The provision for leave pay calculation was not reviewed by the Chief Financial 

Officer. 

Non-compliance with section 3.1.1 of the SALBC and the provision for leave pay balance and 

employee costs may be misstated. 


Leadership 



331



All employees should be granted 24 leave days per annum. The leave allocated to newly 

appointed employees should be pro rata'd from the month of appointment. The leave 

days calculation used for the leave provision should be reviewed by the CFO. 





332


74. Compliance - Personnel expenditure: Non-compliance with section 3.1.2 of the SALBC, 

minimum leave taken 

Audit finding 

Section 3.1.2 of SALBC Main Collective Agreement states that an employee is required to take 

leave within each leave cycle as follows: 

3.1.2.1 A five- (5) day worker shall take a minimum of sixteen (16) days leave; and 

3.1.2.2 A six- (6) day worker shall take a minimum of nineteen (19) days leave. 

Detail testing on employee costs indicated that a number of employees did not take more than 16 

days leave as required by section 3.1.2 of the SALBC in the current financial year, refer below: 

Employee number Employee name Leave days taken 

11 Le Grange 5 

24 Stolls 6 

26 Hendricks 3 

32 Golozana 4 

41 Tarentaal 15 

47 Basson 6 

68 Arries 2 

84 Willemse 8 

93 Doyle 5 

95 Fourie 8 

98 Samuels 12 

111 Fisher 11 

119 Matiwane 15 

121 Plaatjies 2 

122 Bruintjie 2 

126 Zana 15 

130 Rautenbach 4 

133 Cornelius 8 

141 Korkee 5 

143 Strydom 15 

145 Terblance 5 

147 Henderson 1 

149 Japhta 15 

150 Smit 0 

151 Brown 0 

152 Jonas 0 

153 Kruger 2 

154 Roman 0 

155 Natal 0 

156 Piper 0 

157 Mvulane 0 

158 Reyners 0 

159 Daniels 0 

160 Van der Ross 0 

161 Claase 0 

162 Hannies 0 

163 Steyn 0 

164 Japhta 0 

333


Section 3.1.2 of the SALBC Main Collective Agreement was not communicated to all the 

employees. The employees were not encouraged to take at least 16/19 days leave per annum. 

Non-compliance with section 3.1.2 of the SALBC Main Collective Agreement. 


Leadership 




Section 3.1.2 of the SALBC Main Collective Agreement should be communicated to all employees 

and employees should be encouraged to take at least 16 days leave per annum. 





334

75. Compliance - Personnel expenditure: Third party payments 

Audit finding 






control.” 

Deductions should be paid over to the benefit fund within 7 days of the deduction taking place as 

required by Basic Conditions of Employment Act (BCOE) Act par 34A(2). 

SDL must be paid over to the Commissioner of SARS or SETA within 7 days of the month end as 

required by the Skills Development Levies Act par 6(2). 

UIF must be paid over to the Commissioner of SARS within 7 days of the month end as required 

by the Unemployment Insurance Fund. 

During our testing of payments to third parties, we compared the amounts deducted from 

employees and contributed by the council per the payroll sub-ledger to the actual amounts paid 

over to the third parties. We identified variances between the amounts per the sub-ledger and the 

amounts paid over to the third parties. In addition to this, we also identified certain third party 

payments for the months of May 2011 and June 2011 that was not paid over to the third parties 

within 7 days of the month end due to cash flow problem experienced by the Municipality. Details 

of these discrepancies are included in the table below: 

Third Party 

(Per 

category) 

Month 

Amount per 

bank 

statement 

Amount per 

payroll subledger 

Difference 

Date of 

payment 

(if late 

payment) 

Medical 

Aids 

June 2011 R77,741.00 R77,741.00 R0.00 8 July 2011 

Provident 

Fund 

June 2011 R34,622.92 R3,622.92 R0.00 8 July 2011 

Union Fees May 2011 R6,709.64 R6,709.64 R0.00 5 July 2011 

Union Fees June 2011 R6,549.55 R6,549.55 R0.00 8 July 2011 

Huur May 2011 R1,505.00 R1,505.00 R0.00 5 July 2011 

Huur June 2011 R1,505.00 R1,505.00 R0.00 8 July 2011 

Group 

June 2011 R665.20 R665.20 R0.00 8 July 2011 

Insurance 

Mortgage June 2011 R1,127.13 R1,127.13 R0.00 8 July 2011 

Industrial May 2011 R836.40 R836.40 R0.00 5 July 2011 

Industrial June 2011 R828.20 R828.20 R0.00 8 July 2011 

External 

Loans 

External 

Loans 

Insurance 

Policies 

Insurance 

Policies 

Insurance 

Policies 

Insurance 

Policies 

November 2010 R33,751.47 R33,312.13 R439.34 N/A 

December 2010 R34,148.25 R33,708.91 R439.34 

July 2010 R30,257.89 R29,445.24 R812.65 

August 2010 R29,781.85 R28,982.79 R799.06 

September 

2010 

R29,621.85 R28,827.35 R794.50 

October 2010 R30,158.82 R29,349.01 R809.81 

N/A 

N/A 

N/A 

N/A 

N/A 

335


Insurance 

Policies 

Insurance 

Policies 

Insurance 

Policies 

Insurance 

Policies 

Insurance 

Policies 

Insurance 

Policies 

Insurance 

Policies 

Insurance 

Policies 

Garnishee 

Orders 

Garnishee 

Orders 

Garnishee 

Orders 

Garnishee 

Orders 

Garnishee 

Orders 

Garnishee 

Orders 

Garnishee 

Orders 

Garnishee 

Orders 

Garnishee 

Orders 

Garnishee 

Orders 

Garnishee 

Orders 

Garnishee 

Orders 

Pension 

Funds 

Pension 

Funds 

Pension 

Funds 

Pension 

Funds 

Pension 

Funds 

Pension 

Funds 

Pension 

Funds 

November 2010 R31,173.32 R30,334.59 R838.73 

December 2010 R30,642.75 R29,819.12 R823.63 

January 2011 R29,374.21 R28,586.73 R787.48 

February 2011 R29,774.01 R28,742.36 R1,031.65 

March 2011 R30,291.87 R29,478.25 R813.62 

April 2011 R31,798.57 R30,942.01 R856.56 

May 2011 R32,779.46 R31,894.95 R884.51 

N/A 

N/A 

N/A 

N/A 

N/A 

N/A 

5 July 2011, 4 

July 2011 

June 2011 R34,171.76 R33,246.20 R925.56 8 July 2011 

July 2010 R12,616.46 R12,111.59 R504.87 

August 2010 R12,116.46 R11,668.59 R447.87 

September 

2010 

R12,116.46 R11,668.59 R447.87 

October 2010 R12,051.46 R11,607.30 R444.16 

November 2010 R12,051.46 R11,107.30 R944.16 

December 2010 R10,451.46 R10,095.69 R355.77 

January 2011 R9,466.46 R9,512.54 R313.92 

February 2011 R9,466.46 R12,387.24 R2,420.78 

March 2011 R9,342.46 R9,062.74 R279.72 

April 2011 R11,727.46 R11,447.74 R279.72 N/A 

May 2011 R10,527.46 R10,247.74 R279.72 N/A 

June 2011 R11,027.46 R10,747.74 R279.72 8 July 2011 

July 2010 R90,930.18 R87,115.78 R3,814.40 

August 2010 R81,849.82 R78,039.30 -R3,810.52 

September 

2010 

R77,930.26 R77,737.38 -R192.88 

October 2010 R77,930.26 R77,737.38 -R192.88 

November 2010 R76,606.99 R76,776.18 -R192.88 

December 2010 R74,969.06 R74,776.18 -R192.88 

January 2011 R69,547.01 R69,444.13 -R102.88 

N/A 

N/A 

N/A 

N/A 

N/A 

N/A 

N/A 

N/A 

N/A 

N/A 

N/A 

N/A 

N/A 

N/A 

N/A 

N/A 

336

Pension 

Funds 

Pension 

Funds 

Pension 

Funds 

Pension 

Funds 

Pension 

Funds 


February 2011 R83,785.28 R87,210.03 R3424.75 

March 2011 R86,555.17 R86,362.29 -R192.88 

April 2011 R117,001.01 R116,808.13 -R192.88 

May 2011 R82,379.11 R82,186.23 -R192.88 N/A 

June 2011 R84,029.09 R83,836.21 -R192.88 8 July 2011 

SARS July 2010 R160,249.19 R158,006.35 R2,242.84 

SARS August 2010 R168,780.71 R166,430.18 R2,350.53 

SARS 

September 

2010 

R161,362.62 R181,430.43 -R20,459.81 

SARS October 2010 R149,926.53 R124,728.95 R25,197.58 

SARS November 2010 R150,499.87 R148,112.78 R2,387.09 

SARS December 2010 R148,897.83 R146,489.35 R2,408.48 

SARS January 2011 R154,067.40 R151,821.73 R2,245.67 

SARS February 2011 R176,358.00 R174,004.20 R2,353.80 

SARS March 2011 R134,301.41 R132,110.70 R2,190.71 

SARS April 2011 R178,989.72 R176,238.62 R2,751.10 

SARS May 2011 R135,858.56 R133,326.00 R2,532.56 

SARS June 2011 R155,271.01 R152,799.56 R2,471.45 N/A 

Staff 

Deductions 

June 2011 R13,746.46 R13,746.46 R0.00 8 July 2011 

N/A 

N/A 

N/A 

N/A 

N/A 

N/A 

N/A 

N/A 

N/A 

N/A 

N/A 

N/A 

N/A 

N/A 

These variances could not be explained by the Municipality. 

We traced all third party payments, which had not yet been paid over by the year-end to the 

Municipality’s accrual listing. 

The amounts paid over to third parties are determined from the payroll run amounts which are 

system-generated journals. Differences between the actual deductions and council contributions 

per the sub-ledger versus the amount per the general ledger was not identified, as they do not 

perform monthly reconciliations between the payroll sub-ledger and the general ledger. 

If the third parties were to come and claim back the shortfall the Municipality will not be able to 

recover the amounts from their employees. The various third parties might charge penalties and 

interest for the overdue amounts which would be considered fruitless and wasteful expenditure as 

defined by the MFMA. 

The Municipality may incur a potential financial loss through incorrect payments and penalties and 

interest being incurred. Non-compliance with laws and regulations. 

337



Leadership 




The payroll journal should be raised based on the total expense and deductions calculated per the 

payroll system report. The deductions should be raised as a liability in the general ledger to a 

control account. Management should review the accuracy and allocation of these journal entries 

and discrepancies should be followed up and resolved timeously. Payments should then be made 

to third parties, based on the payroll reports generated, by the 7th of the following month. These 

payments should be allocated to the liability control account and a reconciliation performed of all 

these accounts at month end. Management should review the reconciliation of these control 

accounts to ensure all discrepancies are resolved appropriately. 

The necessary steps should be taken to ensure that the source of the error is determined as the 

Salaries control account should be supported by the payroll system reports at month end. If 

possible instruct SAMRAS to program the system in order to disaggregate the data as the account 

includes all salary Items, i.e. facilitate the reconciliation and control process by splitting control 

accounts e.g. PAYE, Medical Aid etc 



Due to a cash flow problem during May and June 2011, all third party payment could only be done 

in July 2011. The cash flow problem was caused by the EPWP project where the municipality paid 

out R2 465 195 and was only reimbursed with R906 000 to date. 



338


76. Compliance - VAT: Output VAT was not disclosed on the VAT 201's for grants received 

Audit finding 

VAT 419 - Guide for Municipalities states: 

A “grant” must be attributed and declared on the VAT 201 return according to whether it relates to 

taxable, exempt or other non-taxable supplies. Where the grant is for both taxable and non-taxable 

purposes, the receipt must be attributed accordingly. 

Detail testing on VAT indicated that the Municipality did not declare any output VAT on the VAT 

201's for grants received. 

Management was not sent on regular training courses that relate to the understanding of the 

regulations and requirements of the VAT Act to ensure that the VAT 201's are accurately compiled. 

Non-compliance with the VAT Act. 





Management should declare output VAT on the VAT 201's for all grants received. Where the grant 

is subsidised for a taxable supply, the Municipality should declare the grant at a zero rate and 

where the grant is subsidised for an exempt supply, the Municipality should declare the grant as an 

out-of-scope receipt in Field 3 of the VAT 201 return. 





339


77. Compliance - Revenue: No interim valuation performed in the current year 

Audit finding 

In terms of section 77 of the Municipal Property Rates act, a Municipality must regularly, but at 

least once a year, update its valuation roll by causing- 

(a) a supplementary valuation roll to be prepared, if section 78 applies; or 

(b) the valuation roll to be amended, if section 79 applies. 

In terms of section 23(2) and (4) of the Municipal Property Rates act about register of properties- 

(1) A municipality should draw up and maintain a register in respect of properties situated within 

that municipality, consisting of Part A and Part B. 

(2) Part A of the register consists of the current valuation roll of the municipality, including any 

supplementary valuation rolls of the municipality prepared in terms of section 78. 

(4) The register must be open for inspection by the public during office hours. If the municipality 

has an official website or another website available to it, the register must be displayed on the 

website. 

No interim valuations were performed in the current year, although there were some alterations 

made to houses and new buildings. The Municipality supplied a list of new buildings and alterations 

to existing buildings, however this list did not provide a value for the change and therefore the new 

rates could not be quantified. 

The municipality do not maintain a register in respect of properties situated within that municipality, 

consisting of Part A and Part B as required by the property rates act. They do however have a 

valuation roll, but it is not split in Part A and Part B. The municipality also do not display such 

register on the official website of the municipality. 

Management did not get Suid Kaap Waardeerders to do an interim valuation as the Municipality 

did not find it necessary due to the limited alterations and new buildings. 

Rates income may be understated as well as non-compliance with the property rates act. 


Leadership 




The Municipality should implement a process to ensure that an interim valuation is performed 

every year and the system should be updated accordingly to ensure the rates are charged at the 

correct value. They should split the valuation roll in Part A and Part B as required by property rates 

act and should publish this property register on their official website. 





340


78. Compliance - Monthly budget statements 

Audit finding 

In terms of section 71(1) g of the MFMA: 

The accounting officer of a municipality must by no later than 10 working days after the end of 

each month submit to the mayor of the municipality and the relevant provincial treasury a 

statement in the prescribed format on the state of the municipality‘s budget reflecting the following 

particulars for that month and for the financial year up to the end of that month: 

g) when necessary, an explanation ofi) 

any material variances from the municipality’s projected revenue by source, and from the 

municipality’s expenditure projections per vote; 

ii) any material variances from the service delivery and budget implementation plan; and 

iii) any remedial or corrective steps taken or to be taken to ensure that projected revenue and 

expenditure remain within the municipality’s approved budget. 

In terms of Municipal budget and reporting regulation 34(1): 

The monthly budget statements must be placed on the municipality's website. 

During the audit of compliance with section 71 of the MFMA it was noted that the Municipality did 

not reflect the following particulars in their monthly budget statements: 

Explanation of material variances from the entity's projected revenue by source; and from the 

entity's expenditure projections. 

Explanation of any material variances from the service delivery agreement and business plan; and 

Explanation of any remedial or corrective steps taken or to be taken to ensure that projected 

revenue and expenditure remain within the entity's approved budget. 

In addition to this, we confirmed that the monthly budget statements are not placed on the 

municipality's website. 













341






342


79. Compliance - Deficiencies identified in the mid-year budget and performance 

assessment 

Audit finding 

In terms of section 72(1) (a) (ii) & (iii) the accounting officer of a municipality must by 25 January of 

each year: 

a) assess the performance of the municipality during the first half of the financial year, taking into 

accountii) 

iii) 

the municipality's service delivery performance during the first half of the financial year, 

and the service delivery targets and performance indicators set in the service delivery and 

budget implementation plan; 

the past year's annual report, and progress on resolving problems identified in the annual 

report; and 

b) Submit such report to the National Treasury and relevant provincial treasury. 

The Municipal budget and reporting regulation 5 (GNR 393 of 17 April 2009) stipulates that the 

mid-year budget and performance assessment report must be placed on the municipality's website 

by 31 January. 

Upon inspection of the mid-year budget and performance assessment the following deficiencies 

were identified: 

The municipality's service delivery performance during the first half of the financial year, and the 

service delivery targets and performance indicators set in the implementation plan was not taken 

into account. 

The municipality's annual report for the past year and progress on resolving problems identified in 

the annual report was not considered. 

The municipality did not submit the mid-year budget and performance assessment to National and 

Provincial Treasury by 25 January 2011. 

The mid-year budget and performance assessment report was not placed on the municipality's 

website. 













343






344


80. Compliance - Adjustment budget for 2010/2011 not made public and submitted late to 

National Treasury 

Audit finding 

In terms of section 28(7) of the MFMA: 

7) Sections 22(b), 23(3) and 24(3) apply in respect of an adjustments budget, and in such 

application a reference in those sections to an annual budget must be read as a reference to 

an adjustments budget. 

In terms of section 22(b) of the MFMA, immediately after an annual budget is tabled in a municipal 

council, the accounting officer of the municipality mustb) 

submit the annual budgeti) 

in both printed and electronic formats to the National Treasury and the relevant 

provincial treasury; and 

ii) in either format to any prescribed national or provincial organs of state and to other 

municipalities affected by the budget. 

In terms of Municipal budget and reporting regulation 27(1) (GNR 393 of 17 April 2009): 

1) The municipal manager must comply with section 28(7) of the Act read together with section 

24(3) of the Act within ten working days after the municipal council has approved an 

adjustments budget. 

In terms of section 24(3) of the MFMA: 

3) The accounting officer of a municipality must submit the approved annual budget to National 

Treasury and the relevant provincial treasury. 

In terms of Municipal budget and reporting regulation 26(1) (GNR 393 of 17 April 2009): 

1) Within ten working days after the municipal council has approved an adjustments budget, the 

municipal manager must in accordance with section 21A of the Municipal Systems Act make 

public the approved adjustments budget and supporting documentation, as well as the 

resolutions referred to in regulation 25(3). 

During our compliance testing on the 2010/11 adjustment budget it was noted that the adjustment 

budget was approved by council on 31 January 2011, however it was only submitted to the 

National Treasury on 8 April 2011 and is therefore in contravention of section 22(b) and 24(3) of 

the MFMA. 

In addition to this we confirmed that the adjustment budget was not made public and is therefore in 

contravention of the Municipal budget and reporting regulation 26(1). 



This is non-compliance with the MFMA and Municipal budget and reporting regulation 26(1) (GNR 

393 of 17 April 2009). 




345












346


81. Compliance - Expenditure: Expenditure incurred and not procured through the SCM 

processes 

Audit finding 





Per section 35(1)(b) of the SCM policy, the Accounting Officer may ratify any minor breaches of 

procurement process by an official or committee acting in terms of delegated powers or duties 

which are purely of a technical nature. 

Per section 35(2) the accounting officer must record the reasons for any deviations in terms of 

paragraph 1(a) and 1(b) of the SCM policy and report them to the next meeting of the council and 

include such information as a note to the Annual Financial Statements. 

During compliance testing of expenditure it was noted that there was a payment made in respect of 

repairs on toilets at the local school. The initial order was for R3 125.90 and the subsequent 

invoice dated 15/06/2011 amounted to R41 329.30. The municipal manager issued a 

Memorandum authorising the expenditure mentioned, however the expenditure relating to this 

amount was not approved by council and is not disclosed in the AFS as part of irregular 

expenditure. 

Management was not aware of the fact that the expenditure formed part of irregular expenditure 

and should be disclosed as such. 

This will result in non-compliance with SCM regulations and policies. 


Leadership 




All expenditure that is not procured through the SCM process should be disclosed as part of 

irregular expenditure. 





347


82. Compliance - Personnel expenditure: Union fee deductions not in terms of signed union 

fee agreements 

Audit finding 





control.” 

During the audit of personnel expenditure, it was noted that the union fees deducted from the 

salary of the employees below did not agree to the recalculated amounts. We applied the rates per 

the official union agreements in our recalculation and compared the recalculated amounts to the 

amounts deducted from the payslips of the employees. The following discrepancies were noted: 

Employee 

Month Union Fee Recalculated Difference 

Name 

Union Fee 

F De Jager July 2010 R70.00 R63.00 -R7.00 

AE Jonas February 2011 R50.00 R55.00 -R5.00 

S Piper January 2011 R50.00 R55.00 -R5.00 

S Piper March 2011 R50.00 R55.00 -R5.00 

Hendricks June 2011 R70.00 R63.00 R7.00 

Nazima June 2011 R70.00 R55.00 R15.00 

Metembo June 2011 R70.00 R63.00 R7.00 

Basson September 2010 R63.00 R55.00 R8.00 

Basson December 2010 R63.00 R55.00 R8.00 

Basson April 2011 R63.00 R55.00 R8.00 

Basson May 2011 R63.00 R55.00 R8.00 

Nappis June 2011 R70.00 R63.00 R7.00 

Strydom July 2011 R50.00 R55.00 -R5.00 

Strydom March 2011 R50.00 R55.00 -R5.00 

Maart September 2010 R50.00 R55.00 -R5.00 

Maart November 2010 R50.00 R55.00 -R5.00 

Mqube June 2011 R70.00 R63.00 R7.00 

Lotter October 2010 R63.00 R55.00 R8.00 

Arends January 2011 R50.00 R55.00 -R5.00 

Arends May 2011 R50.00 R55.00 -R5.00 

Doyle June 2011 R50.00 R55.00 -R5.00 

De Beer February 2011 R50.00 R55.00 -R5.00 

De Beer June 2011 R50.00 R55.00 -R5.00 

Vumazonke June 2011 R50.00 R55.00 -R5.00 

Loock January 2011 R1,314.56 R714.56 R600.00 

In addition to the above findings we could not obtain the union fee agreement for ANC councillors. 

Therefore we could not determine whether the union fees of R487.19 deducted for the month of 

September 2010 for councillor Daniels was accurate. 

These variances could not be explained by the municipality. 

The payroll system is not updated with the latest union fee negotiated. 

348


Incorrect union fees are deducted off the employee salaries and paid over to the Unions. The 

shortfall may have to be made good by the Municipality and may not be recoverable from 

the employees. The Municipality could also incur penalties for incorrect deduction of union fees. 

These costs will lead to fruitless and wasteful expenditure. 





The Municipal staff need to ensure that the payroll system is updated with changes approved by 

the Unions. 





349


83. Compliance - Trade and other receivables: Notices not sent according to the credit 

control policy 

Audit finding 

In terms of the Credit Control Policy of the Municipality: 

Part 3(a) stipulates the following: 

The monthly municipal account will serve as a first notice of payment due by the accountholders. 

Within 7 (seven) calendar days after each monthly due date for payment of municipal accounts for 

property rates and/or service charges, the municipal manager shall dispatch to every 

accountholder, that is, every accountholder who as at the date of the notice has not paid the 

monthly account in full or has not made an acceptable arrangement with the municipal manager for 

partial or late payment, a notice, that will serve as a second notice, stating that unless full payment 

is received or an acceptable arrangement being made with the municipal manager for partial or 

late payment, the municipal electricity to the property to which the account in arrears relates shall 

be terminated or restricted 14 (fourteen) calendar days after the date of the notice concerned. 

Part 3 (c) A notice letter of handover will be sent to the accountholder 20 days after termination of 

services. Handover will be done 7 days after sending the notice letter to the accountholder. 

Section 64(2)(a) of the MFMA: 

The accounting officer must for the purposes of subsection (1) take all reasonable steps to ensure- 

(a)that the municipality has effective revenue collection systems consistent with section 95 of the 

Municipal Systems Act and the municipality’s credit control and debt collection policy. 

We could not obtain the second notices which should be sent out to defaulting accountholders 

according to the Credit Control Policy, the last notices that were sent out, was on 18 April 2011. 

Therefore, no notices were sent out to defaulting debtors in May and June 2011. Upon enquiry it 

was confirmed that no notices are sent out anymore, the electricity is blocked without a notice. This 

was also confirmed by inspection of the blocking lists for May and June. 

No notices of handover could be obtained and it appeared that Part 3(c) of the Credit Control 

Policy is not complied with as we have confirmed that the last handovers were in April as the 

Municipality decided to stop handing over people as they are not getting results from this process. 

The Credit Control clerk was under the impression that she need not send out notices anymore. No 

evidence could be verified as to where this approval by council or the Customer Care and Revenue 

Collection meetings had been ratified. The Municipality decided to stop the hand overs as they are 

not getting results from the debt collectors. 

Non-compliance with the Credit Control Policy of the Municipality which could also result in 

financial loss to the Municipality due to non-collection of debtors. 





Municipality's staff should comply with the Credit Control Policy at all times. If the Municipality 

wants to make any changes to the policy, it should be approved by the appropriate level of 

authority and communicated to the Municipal staff. 

350






351


84. Compliance - Personnel expenditure: Incorrect taxable income used for PAYE 

calculation for councillors 

Audit finding 

In terms of the 4th Schedule of the Income Tax act of 1962 the income included in the Gross 

Income for a Public Office Bearer shall be all pensionable remuneration received of which 50 

percent of the Public Office bearers allowance shall be exempt from normal tax and that part of 

the normal taxable Public Office bearer allowance that can be proved was expensed during the 

carrying out of the individuals duties relating to his employment by the government entity. 

It was noticed through the recalculation of PAYE withheld that councillors receive R60 000 per 

annum classified as tax-exempt income. This should be included in each councillor’s taxable 

income and half of each councillor’s Public office bearer allowance should be exempt from tax and 

thus excluded from the councillor's taxable income used to calculate PAYE. The rest of the Public 

Office bearer allowance may be deducted from gross income to the extent that the individual can 

prove the allowance was expensed in the course of carrying out his duties as a councillor. 

This is due to the CFO not understanding or having insufficient knowledge about the relevant 

sections of the Income tax Act which relates to the calculation of the PAYE for each Councillor and 

thus inputting incorrect classifications for the different income into the system that calculates 

PAYE. 

This is non-compliance of the Income Tax Act of 1962 and will give rise to fruitless and wasteful 

expenditure due to penalties and interest on the shortfall paid over to the South African revenue 

Service. 


Leadership 




The CFO and other staff should be upskilled in the legislative requirements necessary to comply 

with the PAYE requirements. 





352

85. Compliance - SCM: Listing criteria not specified in SCM policy 

Audit finding 


According to the SCM reg.14(1)(b), a supply chain management policy must specify the listing 

criteria for accredited prospective providers. 

Section 14(1)(c) of the municipality's supply chain management policy states that the accounting 

officer must specify the listing criteria for accredited prospective providers. No specific listing 

requirements are included in the supply chain management policy itself. 

Management did not understand how to tailor the SCM regulations to the specific needs and 

requirements of Baviaans Municipality 

Non-compliance with the SCM regulations. This could result in Baviaans Municipality doing 

business with prohibited suppliers. 


Leadership 




Management should read and understand the SCM regulations and adapt it according to the 

nature of the Baviaans Municipality as required by the SCM Regulations. 





353

86. Compliance - SCM: No rotation of invitations for quotations 

Audit finding 


According to the SCM regulation 18(b), when using the list of accredited prospective providers, the 

Accounting Officer must promote ongoing competition amongst providers, including by inviting 

providers to submit quotations on a rotation basis. 

The municipality advertise for quotations and select the cheapest quote and if applicable the bidder 

with the highest points. No formal process is in place to facilitate rotation. 

There is no formal process to facilitate rotation; therefore the SCM clerk does not do it. 

This is non-compliance with the SCM regulations. 


Leadership 




The Accounting Officer should put a process in place to facilitate rotation and communicate the 

process to the SCM personnel. 





354


87. Compliance - Cash and cash equivalents: Non-compliance with section 9(b) of MFMA 

Audit finding 

Section 9(b) of the MFMA states the following: 

The accounting officer must submit to the relevant provincial treasury and the Auditor-General, in 

writing - 

(a) within 90 days after a Municipality has opened a new bank account, the name of the bank 

where the account has been opened, and the type and the number of the account, 

(b) annually before the start of the financial year, the name of each bank where the municipality 

holds a bank account, and the type and number of each account. 

The bank account details of the Baviaans Municipality were only sent to National Treasury on 12 of 

July 2010, which results in non-compliance the MFMA. 

Furthermore, there is no evidence that the Municipality sent information to National Treasury 

regarding the new investment accounts that were opened during the year. The new investment 

accounts for the year were Account numbers 2070593510, 2070494629, 2070593578, 

2070494556, 2070637681. 

This is caused by lack of emphasis placed by management on compliance with laws and 

regulations specifically Section 9 of the MFMA. 

Non-compliance with the MFMA. 



Review compliance and monitor applicable laws and regulations. 


The staff of the Municipality should be upskilled to ensure they implement and adhere to all the 

applicable legislation. 





355


88. Compliance - Conditional grants 

Audit finding 

In terms of DORA 12(4), duties of receiving officer in respect of Schedule 5, 6 or 8 allocation: 

(4) A report by a municipality in terms of subsection (2) (b) must set out for that month and for the 

financial year up to the end of that month— 

(a) the amount received by the municipality; 

(b) the amount of funds stopped or withheld from the municipality; 

(c) the extent of compliance with this Act and with the conditions of an allocation or part of an 

allocation provided for in a framework; 

(d) an explanation of any material problems experienced by the municipality regarding an 

allocation which has been received and a summary of the steps taken to deal with such 

problem 

(e) any matter or information that may be prescribed in the relevant framework for the particular 

allocation; and 

(f) such other issues and information as the National Treasury may determine. 

Upon inspection of the monthly reports submitted by the municipality to the transferring national 

officer, the relevant provincial treasury and the National treasury it was noted that the municipality 

only reports on the amounts received and the expenditure incurred against the allocation. The 

report does however not include the extent of compliance with conditions of the allocation as 

required by section 12(4) of the DORA. 

This is due to the municipality staff not understanding the requirements as set out by section 12(4) 

of the DORA. 

This is non-compliance with section 12(4) of the DORA. 





A register should be maintained for each conditional grant received. This register should contain 

information regarding the amount allocated by the DORA, the actual amounts received, individual 

purchases made for which the grant was utilised and considerations/justification for compliance 

with the grant conditions. 





356


89. Compliance - Cash and cash equivalents: No minutes available for a facility 

Audit finding 

For the purpose of subsection (2)(a), a municipal council may— 

(a) approve a short-term debt transaction individually; or approve an agreement with a lender for a 

short-term credit facility to be accessed as and when required, including a line of credit or bank 

overdraft facility, provided that— 

(i) 

(ii) 

the credit limit must be specified in the resolution of the council; 

the terms of the agreement, including the credit limit, may be changed only by a resolution of 

the council; and 

(iii) if the council approves a credit facility that is limited to emergency use, the accounting officer 

must notify the council in writing as soon as practical of the amount, duration and cost of any 

debt incurred in terms of such a credit facility, as well as options for repaying such debt. 

During the audit, there were no minutes of council resolution for the Commercial & Asset Finance 

Credit Line Facility of R1 800 000 as inspected in the ABSA Confirmation as at 30 June 2011. 

No evidence could be obtained for council resolution as there were no minutes of council approval 

for the Facility. 

This is non-compliance in terms of the MFMA s 45(3) as the Municipality is required to apply s45(3) 

when entering into these types of transactions. This could lead the Municipality into too much debt 

as loans could be obtained without the Council resolution. 






The Municipality should keep proper records of all minutes and also all Facilities should be 

approved by Council before being entered into. 





357


90. Compliance - Section 32(4) reports not sent to Auditor General and to MEC 

Audit finding 

Per section 32(4), the accounting officer must inform the mayor the MEC for local government in 

the province and the Auditor General in writing of 

(a) any unauthorised, irregular or fruitless and wasteful expenditure incurred by the municipality. 

(b) whether any person is responsible or under investigation for such unauthorised, irregular or 

fruitless and wasteful expenditure and 

(c) the steps that have been taken to recover such expenditure and to prevent a recurrence of such 

expenditure. 

Whilst performing testing for unauthorised, irregular and fruitless and wasteful expenditure, it was 

noted that the municipality does not send section 32(4) reports to the Auditor General and to MEC 

as required. 

A schedule of unauthorised, irregular expenditure and fruitless and wasteful is submitted to council, 

however this report does not contain the necessary provisions to ensure that any person is 

responsible or under investigation for such unauthorised, irregular or fruitless and wasteful 

expenditure and that have been taken to recover such expenditure and to prevent a recurrence of 

such expenditure. 

Management were not aware of such reports issued to the Auditor General and MEC. 

This results in non-compliance with MFMA provisions. 

Unauthorised, irregular and fruitless expenditure will not be prevented. 


Leadership 




Section 32(4) reports should be sent to Auditor General and to MEC for local government in the 

province. 

The section 32(4) reports should include. 

a) any unauthorised, irregular or fruitless and wasteful expenditure incurred by the municipality. 

(b) whether any person is responsible or under investigation for such unauthorised, irregular or 

fruitless and wasteful expenditure and 

(c) the steps that have been taken to recover such expenditure and to prevent a recurrence of such 

expenditure. 





358


91. Compliance - Inconsistencies between the annual report and annual financial 

statements submitted for auditing purposes 

Audit finding 

MFMA section 121 (3) (a) requires: 

The annual report of the municipality must include the annual financial statements of the 

municipality as submitted to the Auditor-General for audit in terms of section 126 (1). 

Upon the comparison of the annual report and annual financial statements submitted for auditing 

purposes, we identified material inconsistencies between the figures and disclosure notes of the 

annual financial statements included in the draft annual report and those submitted for auditing 

purposes. This is due to the fact that the draft annual financial statements were included in the 

annual report and not the final version submitted for audit purposes. 

Management neglect to update the annual financial statements in the annual report with the late 

changes made to the annual financial statements submitted for audit purposes due to time 

constraints encountered. 

Non-compliance with section 121 of the MFMA. 


Leadership 




Management should include the annual financial statements submitted for auditing purposes in the 

final version of the annual report to prohibit any inconsistencies between the annual report and the 






359


MOVABLE ASSETS 

92. Property, plant and equipment - Inaccurate correction of prior period error 

Audit finding 

Section 63(1)(a) of the Municipal Finance management Act (MFMA), No. 56 of 2003, states that 

the accounting officer of a municipality is responsible for the management of the assets of the 

municipality, including the safeguarding and the maintenance of those assets. Subsection (2)(a) 

further states that the accounting officer must for the purposes of subsection (1) take all 

reasonable steps to ensure that the municipality has and maintains a management, accounting 

and information system that accounts for the assets and liabilities of the municipality. 

Section 122(1) of the MFMA states inter alia that every municipality must for each financial year 

prepare annual financial statements which: 

(a) fairly presents the state of affairs of the municipality, its performance against its budget, its 

management of revenue, expenditure, assets and liabilities, its business activities, its financial 

results, and its financial position as at the end of the financial year. 

Section 122(3) of the MFMA further states inter alia that the annual financial statements of the 

municipality must be prepared in accordance with generally recognised accounting practice 

prescribed in terms of section 91(1)(b) of the Public Finance Management Act. 

During the testing of the prior period error correction recorded by the client it was noted that 

the derecognition of the Xerox Workcentre 128 (Finance lease number 4) and Digital Copier: 

AF1515MFP (Finance lease number 5) was not accurately accounted for. Upon recalculation of the 

prior period error we noted the following differences: 

Financial Statement component Client calculation Audited value Variance 

Finance lease asset R497 422 R425 341 (R72 081) 

Gain/(Loss) on disposal of assets 

R20 921 (R71 585) R92 506 

and liabilities 

Retained Earnings R9 664 (R10 761) (R20 425) 

Rental: Equipment R40 711 R45 552 R4 841 

VAT Input R4 841 R0 (R4 841) 

The Municipality does not take responsibility for work performed by service providers to ensure that 

the transactions processed in the general ledger are valid, accurate and complete. 

Finance lease assets are overstated by R72 081, VAT Input is overstated by R4 841 and retained 

earnings are overstated by R76 922 in the Annual Financial Statements. 





Management should process the following journal entry in the current year: 

Dr. Retained earnings R76 922 

Cr. VAT Input R 4 841 

Cr. Finance lease assets R72 081 

360


The disclosure in the Annual Financial Statements should be adjusted as follows: 

The comparative amount for Loss on disposal of assets and liabilities must be adjusted by 

R72 081, VAT Input must be adjusted by R4 841 and the Retained Earnings opening balance must 

be adjusted by R76 922. 

In addition to this, all finance leases that are cancelled should be derecognised at the cancellation 

date. 





361

93. Property, plant and equipment - Capitalisation of valuation roll 

Audit finding 


In terms of GRAP 102 (12) an asset meets the identifiability criterion in the definition of an 

intangible asset when it: 

a) is separable, i.e. is capable of being separated or divided from the entity and sold, transferred, 

licensed, rented or exchanged, either individually or together with a related contract, asset or 

liability; or 

b) arises from contractual rights (including rights arising from binding arrangements) or other 

legal rights (excluding rights granted by statute), regardless of whether those rights are 

transferable or separable from the entity or from other rights and obligations. 

During the audit of Property, Plant and Equipment, it was noted that the municipality capitalised the 

valuation roll. Legislation and not the valuation roll, provides municipalities with the right to levy 

taxes. The valuation roll is prepared to execute the rights conferred on municipalities in legislation. 

Consequently, the valuation roll does not generate any economic benefit or service potential for the 

municipality and is similar to an internally generated customer list. Customer lists may not be 

capitalised under GRAP 102. 

The management of the municipality does not fully understand the requirements of GRAP 102. 

Items which do not meet the definition of an asset is capitalised resulting in the overstatement of 

Property, Plant and Equipment and the understatement of expenditure in the Annual Financial 

Statements. 





The Valuation roll should be removed from the fixed asset register. 





362


OPERATING EXPENDITURE 

94. Expenditure - Expenditure relating to special projects incorrectly disclosed by function 

and not nature 

Audit finding 

In terms of GRAP 1 s 101-105: 

An entity shall present an analysis of expenses using a classification based on either the nature of 

expenses or their function within the entity, whichever provides information that is reliable and 

more relevant. 

The first form of analysis is the nature of expense method. Expenses are aggregated in the 

statement of financial performance according to their nature, (for example depreciation, purchases 

of materials, transport costs, employee benefits and advertising costs), and are not reallocated 

among various functions within the entity. This method may be simple to apply because no 

allocations of expenses between functional classifications are necessary. 

The second form of analysis is the function of expense method, and classifies expenses according 

to the programme or purpose for which they were made. This presentation often provides more 

relevant information to users than the classification of expenses by nature, but allocating costs to 

functions may require arbitrary allocations and involves considerable judgement. 

Expenditure has been presented based on the nature of expense method. During the testing of 

expenditure we noted that the presentation method was however not consistently applied. 

Expenditure relating to Special Projects of R1 036 057 was allocated based on function rather than 

nature whilst the other categories of expenditure was based on their nature. 

The Municipality allocated a separate budget for special projects and therefore expenditure 

incurred relating to these projects were all classified under this category rather than classifying it 

according to the nature of the expenses. 

Expenditure is not disclosed consistently according to the accounting policy note in terms of the 

requirements of GRAP 1. 


Leadership 




The Municipality must select the nature or function method of classifying expenditure based on 

what is more reliable and relevant to the users of the Annual Financial Statements. This method 

should be disclosed in the accounting policy notes of the Annual Financial Statements and applied 

consistently to all expenditure disclosed. 

363





Management response is noted, however, this matter will remain for follow up next audit. This 

misclassification will have an effect on the audit opinion expressed. 

364


95. Expenditure - Amount per approved budget does not agree to amount per annual 


Audit finding 





control.” 

Whilst auditing expenditure and revenue, it was noted that the approved budget figures do not 

agree to the amount disclosed in the annual financial statements in Appendix C, as well as the fact 

that the actual amount disclosed in Appendix C do not agree to the amounts on the Statement of 

Financial Performance. 

Description 

BUDGET amount 

per adjustment 

budget 

BUDGET 

amount per 

Appendix C of 

the AFS 

Variance 

Total general expenditure R14 357 862 R10 031 072 R4 326 790 

Repairs and maintenance R2 750 000 R2 705 954 R44 046 

Finance Costs R0 R332 348 -R332 348 

Service charges R11 636 986 R8 773 226 R2 863 760 

Interest Earned – External investments R530 000 R450 000 R80 000 

Interest Earned – Outstanding debtors R560 000 R640 000 -R80 000 

Income from agency services R285 000 R0 R285 000 

Other income R365 889 R304 649 R61 240 

Remuneration of Councillors R788 421 R1 042 232.09 -R253 811 

Description 

ACTUAL Amount 

per Statement of 

Financial 

Performance 

ACTUAL Amount 

per Appendix C 

Variance 

Income from agency services R256 610 R0 -R256 610 

Other income R2 061 493 R615 493 R1 446 000 

License and Permits R518 028 R774 638 -R256 610 

Government grants and subsidies R26 339 950 R 27 785 953 -R1 446 003 

There was an adjustment budget prepared, thus the figures appearing on the face of the annual 

financial statements are per the original budget and have not yet been updated. 

The amount disclosed as budgeted is incorrect and thus will cause users of financial statements to 

be misled as to the amount budgeted for. 


Leadership 




The amounts per the approved budget should be adjusted by the CFO to agree to the amount per 

the budget. 

365






366

96. Expenditure - Fruitless and wasteful expenditure identified 

Audit finding 


In terms of Municipal Finance Management Act, section 65, “The accounting officer must for … 

take all reasonable steps to ensure that the municipality has and maintains an effective system of 

expenditure control, including procedures for the approval, authorisation, withdrawal and payment 

of funds, that the municipality has and maintains a management, accounting and information 

system which it recognises expenditure when it is incurred; accounts for creditors of the 

municipality; and accounts for payments made by the municipality; 

The definition of fruitless and wasteful and irregular expenditure as stated in the Municipal Finance 

Management Act: 

“fruitless and wasteful expenditure” means expenditure that was made in vain and would have 

been avoided had reasonable care been exercised;" 

“Irregular expenditure”, in relation to a municipality or municipal entity, means— 

(a) expenditure incurred by a municipality or municipal entity in contravention of, or that is not in 

accordance with, a requirement of this Act, and which has not been condoned in terms of 

section 170; 

(b) expenditure incurred by a municipality or municipal entity in contravention of, or that is not in 

accordance with, a requirement of the Municipal Systems Act, and which has not been 

condoned in terms of that Act; 

(c) 

expenditure incurred by a municipality in contravention of, or that is not in accordance with, a 

requirement of the Public Office-Bearers Act, 1998 (Act No. 20 of 1998); or 

(d) expenditure incurred by a municipality or municipal entity in contravention of, or that is not in 

accordance with, a requirement of the supply chain management policy of the municipality or 

entity or any of the municipality’s by-laws giving effect to such policy, and which has not been 

condoned in terms of such policy or by-law, but excludes expenditure by a municipality which 

falls within the definition of “unauthorised expenditure”; 

We identified the following fruitless and wasteful expenditure through our audit of expenditure: 

Date Invoice Description Amount 

14 February 2011 FC 2634 Interest on overdue 

R12.43 

account 


R99.46 

account 


R117.91 

account 

5 July 2011 FC 3495 Interest on overdue 

R1 286.35 

account 


account 

R1 443.60 

367



account 


account 


account 


account 


account 


account 


account 


account 


account 

25 May 2011 11014 Interest on overdue 

account 

08 July 2011 11043 Interest on overdue 

account 

R1 286.35 

R2 870.84 

R2 233.34 

R8 395.45 

R3 180.77 

R9 983.20 

R3 745.85 

R9 699.68 

R4 022.37 

R2 239.81 

R5 716.49 

The total amount of fruitless and wasteful expenditure identified amounts to R48 377.60 

This is caused lack of funds to repay the creditors as they become due, within 30 days of receipt of 

invoice. 

This will result in non-compliance with MFMA regulations relating to incurrence of fruitless and 

wasteful expenditure. 


Leadership 




All creditors should be paid within 30 days of receipt of invoice to avoid being charged interest on 

outstanding balances. 





368


PREDETERMINED OBJECTIVES 

97. Performance information - Non-compliance with MFMA sec 32 

Audit finding 

Section 32 of the MSA requires that the municipal manager submit a copy of the IDP to the MEC 

for local government in the province within 10 days after the adoption of the IDP by the municipal 

council. 

Upon the completion of the planning stage of predetermined objectives, it was noted that the 

municipal manager did submit a copy of the IDP to the MEC for local government, but that the IDP 

was not sent within 10 days as required by MSA section 32 after the adoption of the IDP by the 

municipal council. 

The IDP was adopted on 27 May 2010 as per council minutes inspected however, this was then 

only sent to the MEC for local government on 01 July 2010. 

Cacadu District Municipality instructed all municipalities to send the IDP to them. They indicated 

that they would forward this onto to the MEC for local government. In this instance, the IDP was 

sent to Cacadu District Municipality within 10 days. However, Cacadu District Municipality did not 

send it on to the MEC for local governments within 10 days after adoption of the IDP and the 

requirement was therefore not met. 

Non-compliance with the MSA. 

This could lead to inefficiencies within the municipality. 


Leadership 




The municipal manager should ensure that a copy of the IDP is submitted to the MEC for local 

government in the province within 10 days after the adoption of the IDP by the municipal council. 





369


98. Performance information - Objectives in the IDP that relates to other departments 

Audit finding 

Regulation 12(1) of the Municipal Planning and Performance Management Regulations states that 

a municipality must, for each financial year, set performance targets for each of the key 

performance indicators set by it. 

(2) A performance target: set in terms of sub regulation (1) must- 

(a) be practical and realistic; 

(b) measure the efficiency, effectiveness, quality and impact of the performance of the 

municipality, administrative component, structure, body or person for whom a target has been 

set; 

(c) be commensurate with available resources; 

(d) be commensurate with the municipality's capacity; and 

(e) be consistent with the municipality's development priorities and objectives set out in its 

integrated development plan. 

Paragraph 3.3 of the Framework for Managing Program Performance Information states that 

performance targets should be relevant, i.e. the required performance is linked to the achievement 

of a goal. 

Upon inspection of the SDBIP it was noted that a significant part of the objectives stated in the 

SDBIP are not the primary function of the municipality and should rather be implemented by other 

government departments which it relates to. 

Refer to table below for objectives included in the SDBIP which are functions of other government 

departments: 

Objective Key performance indicator Comment 

Need to raise the levelInvestigate possibility to give 

skills / competence of thelearners (Grade 7 – 12) theFunction of department of education. 

community 

opportunity to develop hand skills 

Promote education 

Function of the department of 

Adjustment in school curriculum 

(academic and technical) education. 

Security and safety ofInvestigate the problem ofThis is a function for the department of 

youth 

homeless children 

social development. 

Ensure availability of ambulance 

Investigate private public 

through intersectoral planningFunction of the department of health. 

partnerships 

meeting 

Ensure the availability of doctor 

Lobby with district and 

and dentist through intersectoralFunction of the department of health. 

province 

meeting 

Promote home basedEstablish HIV and AIDS Care 

Function of the department of health. 

care 

Centre at Willowmore 

Improve customer care / Facilitate the establishment of a 


service 

satellite clinic in Baviaanskloof 

Provision of waiting rooms at 


clinics 

Investigate other optionsEstablishment of Thusong CentreFunction of department of local 

to accessible services in Steytlerville 

government. 

370


Reduce distance between 

Establishment of Thusong CentreFunction of department of local 

service and the 

in Steytlerville 

government. 

community 

Improve conditions of 

internal streets and roadsUpgrading of TR397 - Access toThis is a function of the department of 

in Willowmore andWorld Heritage Site 

roads and transport. 

Steytlerville 

Management was unaware that objectives in the SDBIP should not include function of other 

departments. 

Incorrect performance targets would be driven by the municipality which will result in a lack of 

service delivery. 


Leadership 




All projects on the SDBIP which relates to other government departments should be removed from 

the SDBIP. 

Performance indicators should be developed and included in the SDBIP for all the core objectives 

of the municipality that relates to basic service delivery. 





371


99. Performance information - Inadequate controls in place to ensure that performance 

targets in the annual report are accurate, valid and complete 

Audit finding 





Specific controls should be in place to ensure that performance information reported on are 

accurate, valid and complete. 

Upon the auditing of predetermined objectives we noted that there are no or inadequate controls in 

place to ensure that the performance information reported on will be accurate, valid and complete 

for these key performance indicators: 

No sufficient control exists to ensure that all indigent cases are identified. 

There no control in place to ensure that the signed job cards are reconciled to the report where the 

graph originated from which are presented to the council and there is no control in place to ensure 

that the complaint report are matched to the graph which will be represented to council with 

regards to the number of account complaints. 

No sufficient control could be identified for the replacement of Plessey with Conlog meters. 

Management overlooked the fact that specific controls should be in place to ensure that reported 

performance targets are accurate, valid and complete. 

Validity, completeness and accuracy of reported performance information could not be 

established. 


complete. 


Leadership 




All approved indigent applications should be agreed to the indigent list that will be presented to 

council. The CFO should sign as evidence of review. 

All signed job cards should be agree to the report where the graph presented to council originates 

from. The number of complaints logged and resolved complaints should be agreed to the number 

of complaints on the graph and a senior official should sign as evidence of review. 

The excel sheet presented to council for the number of replace conlog metres should be reconciled 

to the delivery notes where the conlog metres were purchased, any variances should be followed 

up and a senior official should sign as evidence of review. 

372






373


100. Performance information - Nature of PMS 

Audit finding 

Regulation 7 requires that the performance management system includes a system and process 

description from the time that the KPIs are developed until the actual performance are reported in 

the annual report at the end of the year. 

Upon performing planning audit procedures on the predetermined objectives we noted that the 

municipality does not have proper Standard Operating Procedures in place to organise the 

Performance Management System. 

There is no process description in place from the time that the KPIs are developed until the actual 

performance is reported in the annual report at the end of the year. 

The performance management system was developed in 2008 and currently the same one is used. 

Validity, completeness and accuracy of reported performance information could not be 

established. 


complete. 


Leadership 




The content of the performance management system should be improved. Management should 

ensure that there is a detail description in place from the time that the KPIs are developed until the 

actual performance is reported in the annual report at the end of the year. 





374

101. Performance information - Format of SDBIP is inadequate 

Audit finding 


Section 62(a) of the MFMA states:- 



maintains effective, efficient and transparent systems that the resources of the municipality are 

used effectively, efficiently and economically. 

Upon performing the planning procedures on the predetermined objectives we noted that the 

format of the SDBIP contained some inefficiencies. 

There are not fourth quarter and annual targets for all the key performance indicators listed in the 

SDBIP. 

Management were not trained to ensure that the SDBIP is correct. The SDBIP was also not 

reviewed by an independent person to ensure that the information contained in the document is 

clear and unambiguous. 

The actual performances as reported in the performance report might not always be accurate, valid 

and complete. 


Leadership 




The SDBIP should be amended for the 2011/12 financial year to ensure that the targets are clear 

and unambiguous. 





375


102. Performance information - Non-compliance with section 127 of the MFMA 

Audit finding 

Section 127 of the MFMA states: 

(5) Immediately after an annual report is tabled in the council in terms of subsection 

(2), the accounting officer of the municipality must— 

(a) in accordance with section 21A of the Municipal Systems Act— 

(i) make public the annual report; and 

(ii) invite the local community to submit representations in connection with the annual report; and 

(b) submit the annual report to the Auditor-General, the relevant provincial treasury and the 

provincial department responsible for local government in the province. 

(6) Subsection (5), with the necessary modifications as the context may require, is also applicable 

if only components of the annual report are tabled in terms of subsection (3) 

Detail testing on performance information indicated that there is no clear evidence that the 

2009/2010 Annual Report was submitted to the Provincial department and the relevant Provincial 

treasury as required by section 127 of the MFMA. 

The documents supporting the evidence that the municipality complied with section 127 of the 

MFMA were not properly filed and easily retrievable for audit purposes. 

Non-compliance with section 127 of the MFMA. 

This could lead to inefficiencies within the municipality as well as performance targets not properly 

monitored. 


Leadership 




A copy of the 2009/2010 Annual Report should be submitted to the Auditor-General, relevant 

provincial treasury and provincial department to ensure that the Municipality complies with section 

127 of the MFMA. 





376


RECEIVABLES 

103. Trade and other receivables - Credit balances included in receivables balance at year 

end 

Audit finding 





During our testing performed on trade and other receivables, credit balances of R40 576.92 were 

included in the balance. This should be reclassified as a liability as at year-end. 

Management was not aware that the credit balances should be reclassified as trade payables at 

year-end. 

Trade and other receivables and trade payables are understated by R40 576.92 





Management should reclassify the credit balances to trade payables at year-end. 





377


104. Trade and other receivables - Provision for doubtful debts does not exist and is not 

complete. 

Audit finding 





During our alternative procedures performed on provision for doubtful debts, we identified 2 

debtors (17230003 and 19273503) who paid subsequent to year-end and had agreements in place 

to settle their debt. These debtors should not be included in the provision for doubtful debts. The 

extrapolated disagreement misstatement is R48 741.04. 

We have identified several debtors who did not pay during the current year or 3 months 

subsequent to year end, however they were not included in full in the provision for doubtful debts. 

This is an indication that the provision for doubtful debts is not complete. The extrapolated 

misstatement on completeness is R688 983.55 

The understatement error on the completeness of the provision and the overstatement error on the 

existence of the provision confirms that the provision for doubtful debt is not correct. We did 

however not take the completeness and existence misstatement to the Summary of Misstatements 

as the full R901 411 provision is already on the Summary of Misstatements as a limitation 

misstatement. 

The provision for doubtful debts was calculated based on a percentage of debtors outstanding 

balance and not by looking at them individually and assessing each situation. 

The provision for doubtful debts is overstated by R48 741.04 and understated by R688 983.55. 

The net effect is that the provision for doubtful debts is understated by R640 242.51. 






The municipality should calculate the provision for bad debts according to the GRAP standards 

based on the credit risk profiles of debtors. The Municipality’s Officials must take ownership and 

responsibility for the work performed by the service providers. 





378


105. Trade and other receivables - No supporting documentation for prior year errors 

disclosed 

Audit finding 





We could not obtain any supporting documentation to vouch the validity of the following journals: 

A34/09/10 and A25/09/10. The limitation misstatement is an overstatement of R9 107.57. 

The CFO does not ensure that there is adequate supporting documentation attached to each 

journal entry sheet to substantiate the transaction. 

Trade and other receivables opening balance is overstated by R9 107.57. 






Documentation required by auditors should be submitted within the required time frames. 





379


REVENUE 

106. Revenue - No pre-paid electricity estimate reflected in the annual financial statements 

Audit finding 

The sale of electricity constitutes a sale of goods. GRAP 9.29 states that revenue from sale of 

goods should be recognised when: 

1. (a) The entity has transferred to the purchaser the significant risks and rewards of ownership 

of the goods; 

2. (b) The entity retains neither continuing managerial involvement to the degree usually 

associated with ownership nor effective control over the goods sold; 

3. (c) The amount of revenue can be measured reliably; 

4. (d) It is probable that the economic benefits or service potential associated with the 

transaction will flow to the entity; and 

5. (e) The costs incurred or to be incurred in respect of the transaction can be measured 

reliably. 

In the case of prepaid electricity, the significant risks and rewards of ownership only transfer to the 

consumer at the time of consumption of the electricity. Consequently, the revenue received from 

prepaid electricity sales should be deferred and recognised as revenue on the consumption basis, 

commencing on the date of purchase. The consumption of prepaid electricity is determined by 

using actual consumption information (if available) or, consumption is measured using a trend 

analysis and other historical data about electricity usage, including how often an electricity card is 

purchased or additional units of electricity loaded onto a prepaid card. The Municipality provided 

the calculation of the estimate to the auditors, however there is no evidence in the Annual Financial 

Statements of the pre-paid electricity estimation at year-end. This should be classified as 

Income received in advance at year-end. The amount of the estimation is R54 730.20. 

Management calculated this estimation after the Annual Financial Statements were compiled. 

Revenue is overstated and Income received in advance is understated, therefore resulting in the 

misstatement of the Annual Financial Statements. 





This estimation should be calculated monthly and be classified as Income received in advance to 

prevent the overstatement of revenue recognition. 





380


107. Revenue - License and permits variance 

Audit finding 





According to the eNatis reports the total Licence and Permits income for the year is R2 417 428 

and 23% commission is R556 008.45, however in the Annual Financial Statements commission 

income is reflected as R518 028. No explanations or audit evidence was provided to support the 

difference as requested per RFI 40 (difference between eNatis reports and SAMRAS) issued on 12 

September 2011 and due on the 14 September 2011. 

License and permits reconciliations between the eNatis system and the receipts received are not 

performed on a monthly basis. Bank reconciliations are not performed. Management does not 

review the work performed by the clerks. 

License and permits commission is understated by 

Statements. 

R37 980.45 in the Annual Financial 





Revenue reports and receipts reconciliations should be performed by the expenditure clerk 

between the eNatis system and the SAMRAS DB4 system Vote no. 10058604 and 10058634 and 

receipts received in the bank on a monthly/daily basis. The expenditure clerk should sign the 

above reconciliation as evidence of preparing the reconciliation accurately and completely. The 

income reconciliation should be reviewed by the CFO for reasonableness and sign the 

reconciliation as evidence of the review process. The bank account should be reconciled and 

reviewed monthly. 





381

108. Revenue - Incorrect tariffs used for other income 

Audit finding 






During our detail testing performed on other income, it was noted that the rate charged to the 

clients does not agree to the tariff listing. Firstly, receipt number 21222, for a fax, was charged at 

R10, however the tariff list is R11. Secondly, 2 receipts (number 19232 and 21526) for graveyard 

spaces were charged at R37.65 and R75.31 respectively, however the tariff list is R33 and R66 

respectively. 

The extrapolated disagreement misstatement is R21 216.66, revenue is overstated by this amount. 

We were unable to obtain supporting documentation for the tariff charged for the rent of the sport 

fields, according to receipt number 20490, an amount of R53 was charged. After enquiry, this could 

not be identified on the tariff list. The extrapolated limitation misstatement is R86 760.71, revenue 

is overstated by this amount. 

The total extrapolated error is R107 997.37. 

Cashiers do not charge the clients the correct tariffs as they are not educated enough to 

know which services on the tariff list include VAT and which services exclude VAT and they are not 

well informed of the new tariffs each year. 

Revenue is overstated by R107 997.37. 






Cashiers must be prompted to use the correct tariffs for the different services according to the tariff 

list. 





382


109. Revenue - Interest raised at the incorrect rate 

Audit finding 





During our testing performed on interest charged to receivables, interest was calculated at 2% and 

not prime + 2% as per the policy. The extrapolated error is R26 339.30 

The SAMRAS system has been set to charge interest at 2%. 

Interest income is understated by R26 339.30. 






Contact SAMRAS to correct the interest rates charged to receivables on these specific services. 





383

110. Revenue - No supporting documentation for pre-paid electricity 

Audit finding 






During our testing performed on pre-paid electricity, we could not obtain the shift reports from 

Syntell for the following dates and receipts and therefore could not ascertain whether it related to 

pre-paid electricity revenue: 

Receipt 

Date no Amount 

5/10/2010 18958 R4,462.19 

5/11/2010 19418 R83.33 

3/02/2011 20349 R864.04 

9/03/2011 20754 R3,187.73 

24/06/2011 21803 R138.60 

The extrapolated error is R92 074.54 

This is caused by lack of emphasis placed by management on the importance and consequences 

of not submitting information timeously as well as Steytlerville that do not have a proper filing 

system for easy access to information the staff do not file shift reports according to dates. 

Pre-paid electricity revenue is overstated by R92 074.54. 






All records from the Syntell system should be kept and filed methodically, as well as being 

reconciled to the receipts received. 





384


111. Revenue - Incorrect journal entry posted to income from agency services 

Audit finding 





A journal of R26 482.45 was incorrectly debited to vote 10079676 (Income received from agency 

services) and credited to vote 4000990032 (Bank). This journal was to correct an amount that 

should not have been receipted and recorded in the General Ledger. The original entry was 

however never posted to vote 10079676, therefore resulted in a further error. 

The entry was posted to the incorrect vote and management did not review the journal posted for 

accuracy and appropriateness. 

Income from agency services and Bank are understated by R26 482.45. 






The journal should be supported by valid supporting documentation otherwise it should be 

reversed. Management should review all journals posted into the general ledger for accuracy and 

appropriateness. 





385


TAXES 

112. VAT - No accounting policy in the annual financial statements 

Audit finding 

GRAP 3 par 05 and 06 states: 

.05 When a Standard of GRAP specifically applies to a transaction, other event or condition, the 

accounting policy or policies applied to that item shall be determined by applying the standard and 

considering any relevant Interpretations issued by the ASB for the Standard. 

.06 Standards of GRAP set out accounting policies that the ASB has concluded result in financial 

statements containing relevant and reliable information about the transactions, other events and 

conditions to which they apply. Those policies need not be applied when the effect of applying 

them is immaterial. However, it is inappropriate to make, or leave uncorrected, immaterial 

departures from Standards of GRAP to achieve a particular presentation of an entity’s financial 

position, financial performance or cash flows. 

There is no accounting policy note relating to VAT in the Annual Financial Statements. 

Management were not sent on adequate training courses relating to requirements of GRAP and 

the Annual Financial Statements were not adequately reviewed prior to submission for auditing 

purposes. 

Non-compliance with GRAP 3. There is also no clear indication for the user of the Annual Financial 

Statements on how VAT is treated. 


Leadership 




An accounting policy for VAT should be included in the Annual Financial Statements, this 

accounting policy should clearly indicate how VAT is accounted for in the accounting records. 





386


ANNEXURE C: ADMINISTRATIVE MATTERS 


1. Internal Control - Personnel expenditure: No supervisor observation of general office 

employees signing attendance registers 

Audit finding 





Whilst obtaining an understanding of the controls around signing of attendance registers, it was 

noted that while general employees were observed by the foreman when signing attendance 

registers, the general office employees were not subjected to the same controls as no one was 

responsible for observing them when signing attendance registers. 

Management has not instituted controls to detect employees signing for one another. 

Employees may sign in for employees who are not at work. This may result in ineffective and 

inefficiencies in the financial reporting process, resulting in the need for consultants to rectify and 

complete the necessary work to be performed by that employee. This results in a financial loss to 

the municipality being fruitless and wasteful. In addition to this, the risk of fraud is also increased 

as the creation of fictitious employees might go undetected. 


Leadership 




Management should implement a process where a senior delegate observes employees signing 

the attendance registers in the general office. The responsible person should sign the register as 

evidence of task performed. 



Will ensure that the computerised system is functioning at all times as it is an accurate monitoring 

tool. 



387


2. Internal Control - Other financial assets: Investment register is not signed as evidence 

of review 

Audit finding 





According to the Cash and Investing policy, section 5(5) the CFO should ensure that proper 

records are kept of all investments made by the municipality. 

We noted that the investment register prepared for January 2011 was not signed as evidence of 

review by the CFO. 

Management does not place sufficient emphasis on independent reviewing and controls. 

This may result in the investment register not being updated and monitored and result in the 

Annual Financial Statements being misstated. 


Leadership 




The Chief Accountant should ensure that there is an investment register maintained which should 

contain the following columns, date of investment, institution in which moneys invested interest rate 

applicable and maturity date. The CFO should review the schedule on a monthly basis before it is 

presented to council. 





388


3. Internal Control - Provisions: Inaccurate valuation on provision for bonuses 

Audit finding 






21. In rare cases, it is not clear whether there is a present obligation. In these cases, a past 

event is deemed to give rise to a present obligation if, taking account of all available 

evidence, it is more likely than not that a present obligation exists at the reporting date. 

24. Financial statements deal with the financial position of an entity at the end of its reporting 

period and not its possible position in the future. Therefore, no provision is recognised for 

costs that need to be incurred to continue an entity’s ongoing activities in the future. The only 

liabilities recognised in an entity’s statement of financial position are those that exist at the 

reporting date. 

The Provision for Bonus balance as at year-end was initially calculated using the Municipality's 

next financial year's budgeted basic salary. The calculation was sent back and was redone for 

audit purposes. 

Management calculated the Provision for bonus balance on the projected budget for the next 

financial year. 

This will result in an overstatement of the Provision for bonus balance. 


Leadership 




The Municipality should use the current financial year's basic salary as at 30 June to calculate the 

Provision for Bonus balance as the present obligation is as at 30 June 2011. 


Management agreed with the audit finding and root cause and have recalculated the provision 

applying the correct rates. The financial statements were adjusted accordingly. 


Management response is accepted and the finding is no longer considered relevant. 

389


4. Internal Control - Personnel expenditure: No ID numbers in the payroll master file 

Audit finding 

MFMA section 8, regulation 62 (a) requires: 



maintains effective, efficient and transparent systems. 

No master files were available for these employees. 

For these employees there is no employee file or payslip as they retired years ago and only 

receive a medical aid contribution. 

Initials Surname Employee number 

L Anker 2001 

JT Fourie 2004 

HJB Maree 2009 

A Taljaard 2010 

Employees that have retired years ago have no employee file and do not receive a 

payslip. Therefore a valid ID number for these employees in the CAAT's could not be found on a 

payslip or employee file. 

Employees that were in employment of the Municipality could result in ghost/invalid employees 

being paid through the payroll. 






There should always be an employee file for employees obtaining remuneration from the 

Municipality, containing a copy of their ID's and their spouses ID. An authorized form for these 

contributions from the Municipality should also be included in the employee file. 

The payroll system should make the ID field a mandatory field requiring input. 





390


5. Internal Control - Personnel expenditure: Supporting documentation not on employee 

files 

Audit finding 





control.” 

For the following listed employees there either were insufficient documents in the related employee 

files or were not equal to the amount deducted. 

Employee Name Employee Number Documents Outstanding 

K Jordaan 29 Taxable allowances approval form, external 

loan authorization forms, Current Provident 

fund deduction forms, Current Medical Aid 

deduction forms 

GA De Vos 85 Advances approval forms, 

Taxable allowance approval form 

D Manuel 33 Amount on Insurance deduction approval 

forms does not equal deduction, Current 

Provident fund membership forms, 

Taxable allowance approval forms 

B Tarentaal 64 Insurance deduction approval from amounts 

not matching deducted amount, 

Taxable allowance approval form 

H Japhta 15 Insurance deduction approval form, 

External loan amount on form does not agree 

to actual deduction in schedule. 

A Boois 18 Insurance deduction approval form, 

R Jaer 19 Insurance deduction approval form, 

Advances approval form 

F De Jager 20 Insurance deduction approval form does not 

match amount deducted, 

Staff deduction approval form 

E Jordaan 22 Advances approval forms, 

Garnishee orders, 

F Stolls 24 Insurance deduction approval form, 

E Petroos 28 Garnishee Orders 

J Tarentaal 41 Amount on Insurance deduction approval 

form does not equal the actual deduction, 

Garnishee Orders 

J Napisi 55 Garnishee Orders 

D Miggles 65 Insurance approval form amount does not 

agree to actual deduction, 

Garnishee Orders 

F Arries 68 Garnishee Orders 

T Willemse 84 Advances approval forms, 

M van Vuuren 115 Insurance deduction on approval form does 

not agree to amount on the schedule, 

Advances approval forms, 

HJ Manuel 123 Insurance form does not agree to system, 

Advances approval forms, 

391


Buys 5 External loan deduction authorization forms, 

Garnishee order form 

Le Grange 11 Insurance deduction approval form, 

Group insurance approval form 

Nappis 49 Insurance deduction approval form 

Garnishee order form 

Strydom 50 Union membership form 

Draai 96 Staff deduction approval form 

Hendricks 97 Insurance deduction approval form for wrong 

month was provided. 

Samuels 98 Insurance deduction approval form 

Maart 110 Union membership form, 

Mapoe 125 Insurance deduction approval form 

External loan amount on deduction 

authorization forms does not equal amount 

deducted on schedule. 

Rautenbach 130 Insurance deduction approval form 

Terblanche 138 Current Medical Aid amount on the deduction 

forms does not equal the actual deduction. 

Hannies 162 Staff deduction approval form 

Nappies 54 Insurance deduction approval form, 

Staff deduction amount on form does not 

match schedule. 

Garnishee order form and Transfer letter for 

the year. 

Booysen 118 Insurance deduction approval form, 

External Loan Deduction amount not equal to 

that of collection schedule. 

Arends 78 Union membership form, 

Doyle 93 Union membership form, 

De Beer 104 Union membership form 

Vumazonke 109 Union membership form 

Sampies 52 Transfer Document for the year 

Japhta 70 No Date on Termination Document 

Uithaler 91 Transfer Document for the year 

Loock 1004 Union membership form 

Daniels 1007 Advances approval form 

Union membership form 

The documents requested for approval of deductions have not been filed in the individual 

employee files, but in files where all these deductions are recorded per the date these forms were 

signed. This makes it impossible to find all documents requested as some employees were 

employed years ago and have signed some of these documents when first employed. 

There is a risk that employees could receive incorrect payments of salary due to incorrect 

amounts being deducted off their salaries. 

392







Standard operating procedures should be implemented to guide all staff working in the Human 

Resources department. Care should be taken to ensure that all deductions are subject to prior 

approval from staff members. This documentation should be kept in the employee files or on 

record in the finance department. The following steps should thus be taken. 

Employee files should be updated more regularly for any changes in employees personal 

information and also those pertaining to his/hers employment. 

If it is not practical to keep all such documents and those relating to deductions in their employee 

file then for each deduction a separate file should be kept where all employees receiving this 

certain deduction's form is kept. When an employee resigns, retires or is discharged the records 

clerk should ensure before the employee leaves the employment of the Municipality that the 

employee file for the employee leaving is updated by including the termination document as well as 

the letter indicating the payout amount received by the employee on termination and the relevant 

tax withheld on the amount. 



Documents related to deductions from salaries are given to the payroll section which falls under 

finance department. These documents are filled in the file for that particular month and not per 

forms e.g. union forms separately. The filling system will be improved a specific documents will be 

kept separately and transferred to personnel files. Council will consider making deductions on 

statutory deductions only. 



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6. Internal Control - Consumer deposits: No monthly reconciliation performed between 

the consumer deposit register and the general 

Audit finding 





During the audit of consumer deposits it was noted that no reconciliation is performed between the 

consumer deposit register and the general ledger. The following variance occurred: 

Balance per the 

consumer deposit 

register 

Balance per the 

general ledger 

Variance 

R139 425.06 R137 164.86 R2 260.20 

Although the variance is clearly trivial, this is considered an internal control deficiency which should 

be addressed. 

Due to the minimal movements in the consumer deposits account management did not consider it 

necessary to perform monthly reconciliations. 

This may result in inaccurate financial reporting and may result in a financial loss to the 






The Accountant: Income should perform monthly reconciliations between the deposit register (subledger) 

and the consumer deposit general ledger control account. Discrepancies should be 

followed up and resolved timeously. The reconciliations should be reviewed by the Chief 

Financial Officer on a monthly basis and signed as evidence. 





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FINAL MANAGEMENT REPORT - Baviaans Municipality

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