2011-12

2011-12
General report on the audit outcomes of
local government WESTERN CAPE

Our reputation promise
The Auditor-General has a constitutional mandate and, as the Supreme Audit
Institution (SAI) of South Africa, it exists to strengthen our country’s democracy
by enabling oversight, accountability and governance in the public sector
through auditing, thereby building public confidence.

General report on the audit outcomes of
Local Government WESTERN CAPE 2011-12
Our responsibility
extends to citizens
who trust us to make
a contribution towards
a better South Africa
The information and insights
presented in this flagship
publication of my office
are aimed at empowering
oversight structures and local
government and provincial
leaders to focus on those
issues that will result in reliable
financial statements, credible
reporting on service delivery
and compliance with laws
and regulations.
This publication also captures
the commitments that leaders
have made to improve audit
outcomes.
AUDITOR-GENERAL: TERENCE NOMBEMBE

Table of contents
Our reputation promise/mission ............................................................................................................................................................. 2
FOREWORD ................................................................................................................................................... Error! Bookmark not defined.
SECTION 1: Executive summary ............................................................................................................................................................. 7
SECTION 2: OVERVIEW OF AUDIT OUTCOMES .................................................................................................................................. 13
2.1 Summary of audit outcomes ....................................................................................................................................................................................................... 13
2.2 Findings arising from the audit of financial statements ........................................................................................................................................................... 29
2.3 Findings arising from the audit of reporting on predetermined objectives ............................................................................................................................ 33
2.4 Findings arising from the audit of compliance with laws and regulations ............................................................................................................................. 37
SECTION 3: ROOT CAUSES OF AUDIT OUTCOMES ........................................................................................................................... 61
3.1 Summary of root causes of poor audit outcomes ..................................................................................................................................................................... 61
3.2 Significant deficiencies in auditees’ systems of internal control ............................................................................................................................................ 66
3.3 Human resource management .................................................................................................................................................................................................... 74
3.4 Information technology management ........................................................................................................................................................................................ 85
3.5 Audit committees and internal audit units ................................................................................................................................................................................. 98
SECTION 4: INITIATIVES AND IMPACT OF KEY ROLE PLAYERS ON AUDIT OUTCOMES ........................................................... 101
4.1 Assurance providers in local government ............................................................................................................................................................................... 101
4.2 Oversight by municipal public accounts committees ............................................................................................................................................................ 109
4.3 Interactions with mayors ........................................................................................................................................................................................................... 112
4.4 Initiatives and commitments of key role players to improve audit outcomes ...................................................................................................................... 114
4.5 Auditor-General of South Africa’s initiatives to encourage clean audits ............................................................................................................................. 119
SECTION 5: FINANCIAL HEALTH OF LOCAL GOVERNMENT .......................................................................................................... 121
5.1 Going concern ............................................................................................................................................................................................................................ 121
5.2 Financial health indicators ........................................................................................................................................................................................................ 121
3

KEY ROLE PLAYERS NOT PROVIDING ASSURANCE
MANAGEMENT AND LEADERSHIP INTERNAL INDEPENDENT ASSURANCE AND OVERSIGHT EXTERNAL INDEPENDENT ASSURANCE AND OVERSIGHT
Senior
management
19%
66%
15%
Municipal
management
15%
58%
27%
Mayor
35%
46%
19%
Internal
audit
50%
31%
15%
4%
Audit
committee
46%
31%
23%
Treasury,
cooperative
governance
department,
premier’s office
100%
Council
Provides assurance Provides some assurance Provides limited/no assurance Not established
31%
50%
19%
Municipal
public accounts
committee
8%
12%
15%
65%
Legislature
and portfolio
committee
100%
1
1
THE KEY ROLE PLAYERS NEED TO...
DRIVERS OF KEY CONTROLS NOT IMPROVING
53%
23%
24%
Leadership
47%
26%
27%
Financial and
performance management
35% 33%
34%
31%
30%
37%
53%
29%
18%
Governance
Good Causing concern Intervention required
43%
27%
30%
2011-12 2010-11 2011-12 2010-11 2011-12 2010-11
19%
77%
4%
2011-12
Unqualified with
no findings
IMPROVEMENT IN
AUDIT OUTCOMES
80%
12%
Unqualified with
findings
8% 4%
2010-11
4
80%
16%
2009-10
Qualified/adverse/disclaimed
with findings
...TO ENSURE
IMPROVED
RESULTS...
3
...IN SIX KEY AREAS...
KEY RISK AREAS NOT RECEIVING
REQUIRED ATTENTION
Supply chain
management
Information
technology
controls
Quality of
performance
reports
Financial
health
...TAKE SOME VITAL
ACTIONS...
Quality of
submitted
financial
statements
Human
resource
management
Good Causing concern Intervention required
2
Unchanged
Regressed
ROOT CAUSES NOT BEING ADDRESSED
Key positions vacant or key officials
lacking appropriate competencies
A root cause at 50%
of auditees
Lack of consequences for poor
performance and transgressions
A root cause at 38%
of auditees
Slow response by political leadership in addressing
the root causes of poor audit outcomes
A root cause at 73%
of auditees

FOREWORD
I hereby present to the legislature and municipal councils of the Western Cape province my 2011-12 general report summarising the results of the audit
outcomes of local government for the financial year ended 30 June 2012.
The positive trend towards clean administration in the province is slowly gaining momentum, with five (19%) of the 26 municipalities in the province included in
this analysis for 2011-2012 achieving clean audit outcomes. Despite commitments by the municipal leadership, 20 of the 26 auditees (77%) received
financially unqualified with findings. Of the 20 auditees in this category, 17 remained financially unqualified with findings. These auditees had to make material
corrections to their financial statements during the audit and failed to avoid material findings on predetermined objectives and/or compliance with laws and
regulations. This stands in sharp contrast to those municipalities with clean audit outcomes whose leadership is working together with the governance and
oversight structures to monitor the implementation of credible actions plans to address past audit findings and internal control deficiencies, while basic
financial disciplines and monthly processing and reconciling of transactions, regular preparation of credible financial and performance reports, as well as the
effective implementation of checklists to ensure compliance with laws and regulations have become the norm. The rand value of irregular expenditure
decreased notably in the current year from R242,8 million to R66,6 million through the concerted efforts of the leadership to prevent non-compliance with
supply chain management regulations, after being highlighted as a key concern in 2010-11. A total of four audits were still outstanding at the date of this report
due to municipalities not submitting financial statements by the legislated deadline. This is a result of poor discipline and a lack of competence as well as the
leadership’s failure to set the right tone with a view to improving accountability. These municipalities must consider replicating the processes implemented by
the Swartland and West Coast District Municipalities, which have sustained their clean audit outcomes and which have ensured that their finance units are
adequately capacitated and the municipal managers hold all municipal officials accountable for clean governance within the municipalities
Although we acknowledge the improvements in findings relating to supply chain management regulations and predetermined objectives, uncompetitive
procurement and other deviations from supply chain management regulations remained a prominent feature at many municipalities. The quality of financial
statements submitted for auditing, as well as the quality of performance reports, remained a concern. Adequate progress had not been made in addressing
prior information technology control findings owing to key vacant positions and key officials lacking appropriate competencies. If these key areas are not
effectively addressed, supported by a strengthened human resource capacity, as demonstrated by the good practices of municipalities with clean audit
outcomes as mentioned above, they will continue to hamper the achievement of sustainable clean audit outcomes and impair the financial health of
municipalities.
Central to the stagnation in the audit outcomes of the majority of municipalities was the fact that many councils, executive mayors and municipal managers did
not consistently focus on internal control deficiencies, with the result that corrective action was not taken in time to positively impact the control environment at
73% of municipalities. The inadequate management of the performance of accounting officers and employees at 38% of municipalities, as well as key
positions that remained vacant for long periods of time in the case of 50% of municipalities, further compromised the achievement of clean audit outcomes. At
some municipalities, key officials lacked appropriate competencies, as reflected by their continued reliance on consultants to prepare financial statements and
on the audit process to correct material misstatements in their financial statements. Financial management practices at the province’s municipalities were
generally not adequate. In municipalities with clean audit outcomes, the administrative and political leadership actively took ownership to address financial,
performance and governance deficiencies, while enhancing oversight responsibilities and enforcing accountability and consequences for poor performance
and transgressions. The municipal leadership, assisted by the Department of Local Government, the provincial treasury and governance structures, must take
effective steps to enable timely remedial action where financial health and service delivery of municipalities may be at risk.
5

In working towards sustainable clean administration, the municipal leadership should enhance the ability of management to provide first-level assurance
(management assurance) about the validity, accuracy and completeness of financial and performance information and compliance with laws and regulations.
This is directly linked to the implementation of properly designed internal controls and the preparation of regular financial statements. Moreover, municipal
councils and municipal public accounts committees should be strengthened through intensified training to enable them to improve their oversight functions and
hold the administration accountable for non-performance. Oversight by the legislature and portfolio committees should be strengthened and be more vigorous
in following up their resolutions. This can only happen through the coordinated efforts of the provincial executive, the provincial legislature, the provincial and
national departments responsible for monitoring and coordinating, the South African Local Government Association and municipal councils.
It is encouraging that the executive has reaffirmed their collective intention to assist municipalities to achieve clean administration. We also take note of the
efforts of the legislature to monitor the actions of municipalities to address the obstacles to achieving clean administration. Indeed, progress towards
improved transparency and accountability will be evident only when the leadership sets the right tone.
As part of our contribution towards clean administration, our provincial leadership will continue to refine their strategies to improve the clarity and simplicity of
our messages.
I wish to thank the audit teams from my office and the audit firms that assisted in the province for their diligent efforts towards fulfilling our constitutional
mandate and the manner in which they continue to strengthen cooperation with the leadership of the province.
Auditor-General
Pretoria
6

SECTION 1: Executive summary
Significant aspects of the 2011-12 audit outcomes of the Western Cape Local Government are summarised in the table below, followed by a summary of
the root causes.
Table 1: Significant aspects of the audit outcomes and root causes
Aspect Indicator Key outcomes and trends
Overall audit
outcomes
Overall trends
Improved audit
outcomes
Sustained clean
audit outcomes
The overall audit outcomes for the province improved as six (23%) auditees improved, with only
one (4%) auditee regressing.
Over the past three years there has been slow progress towards clean audit outcomes, with the
number of clean audit outcomes increasing from one in 2009-10 to two in 2010-11 and thereafter
to five in 2011-12.
The improved audit outcomes included those of three (12%) auditees that progressed to clean
audit outcomes by addressing the weaknesses in predetermined objectives and/or findings on
compliance reported in the prior year; and another three (12%) auditees that progressed to
unqualified with material findings on predetermined objectives and/or compliance by
addressing the qualification findings.
The two (8%) auditees with a clean audit outcome in 2010-11 were able to sustain their clean
audit status.
Submission of
financial
statements for
audit
Unchanged
Regressed outcomes on
predetermined objectives
Late submission of
annual financial
statements
A total of 17 (65%) auditees remained unqualified with material findings on predetermined
objectives and/or compliance. Of these auditees 15 (58%) have not been able to progress to
clean audit status for the past three years, failing to avoid material findings on predetermined
objectives and/or compliance.
Two (8%) auditees with no material findings on predetermined objectives in the prior year
regressed.
Four (13%) auditees had not submitted annual financial statements by 31 August 2012, as
required by the Municipal Finance Management Act, 2003 (Act No. 56 of 2003) – an improvement
compared to 12 (40%) in the prior year. By 31 March 2013 the audits of four (13%) auditees had
not been finalised mainly as a result of late submission of their annual financial statements.
Opinions on Quality of submitted Only eight auditees submitted financial statements without material misstatements.
7

Aspect Indicator Key outcomes and trends
financial
statements
Reporting on
predetermined
objectives
Findings on noncompliance
with
laws and
regulations
financial statements Seventeen (65%) auditees achieved an unqualified audit opinion because they corrected all the
misstatements that the Auditor-General of South Africa had identified during the audit.
Only one (4%) auditee received a qualified opinion, moving from an unqualified with material
Net improvement in
findings on predetermined objectives and/or compliance in the prior year. The three (12%)
qualified audits
auditees with qualified opinions in 2010-11 moved to unqualified opinions with material findings
on predetermined objectives and/or compliance.
The qualification area for the auditee is the completeness and existence of current assets (inventory) disclosed in their financial
statements.
No material
findings on
Fourteen (54%) auditees did not have any material findings on the usefulness and reliability of
usefulness and
their annual performance reports – improving from nine (35%) in the prior year.
reliability
Annual report contained
material misstatements
Planned service delivery
targets
Eleven (42%) auditees submitted annual performance reports that contained material
misstatements, 10 of which were able to avoid findings on the presentation and reliability of the
reports because they corrected all misstatements identified during the audit.
Based on the annual performance reports, 69% of auditees achieved 80% or fewer of their
planned service delivery targets.
The most common material finding on the usefulness of the reported information was that the performance targets were not
specific and/or measurable to ensure that the required performance can be meaningfully measured.
Findings on reliability of the annual performance reports mostly related to the accuracy of the information and the validity thereof.
Material findings on noncompliance
Findings on material
misstatements only
Material findings on non-compliance with laws and regulations were reported for 21 (80%)
auditees, an improvement from the 24 (92%) in the prior year. Only three auditees addressed their
prior year findings on compliance and no auditees had material findings for the first time this year.
Two (8%) auditees only had findings on material misstatements in submitted financial statements. Full
compliance with key laws and regulations is therefore within their reach.
The top three areas of non-compliance related to material misstatements in submitted financial statements, prevention of and
addressing unauthorised, irregular as well as fruitless and wasteful expenditure, and procurement and contract management
(supply chain management), which occurred as a combination and/or individually at 21 (80%) municipalities.
The other areas of non-compliance included audit committees, internal audit, budgets and asset and liability management.
AGSA focus area – Improvement in the Findings on supply chain management were reported in the management reports of 24 (92%)
8

Aspect Indicator Key outcomes and trends
Supply chain
management
Unauthorised,
irregular as well as
fruitless and
wasteful
expenditure
number of auditees with
material non-compliance
findings on supply chain
management
Some improvement in the
awards to suppliers in
which employees had an
interest
Regression in awards to
family members of
employees of the auditee
Some improvement in
completeness of
declarations by
employees and suppliers
Regression in unfair and
uncompetitive
procurement practices
Incurred by 92% of
auditees
Unauthorised
expenditure increased by
R752,7million
Irregular expenditure
decreased by R176,2m
million
Fruitless and wasteful
[2010-11: 22 (85%)] of the auditees, while at 10 (39%) [2010-11: 22 (85%)] auditees the findings
were material enough to warrant reporting thereon in the auditor’s report. At an overall level there
has been some improvement, with the number of instances of non-compliance reducing at each
auditee. One auditee improved to no findings for the 2011-12 year and three regressed.
Contracts to the value of R200 129 identified at three auditees were awarded to suppliers in
which employees of the auditee had an interest. This represents a decrease from the
R1,8 million identified in the prior year at four auditees.
Contracts to the value of R37,4 million identified at 10 auditees were awarded to suppliers in
which close family members of employees of the auditee had an interest, which represents
an increase from the R3,4 million identified in the prior year at two auditees.
Where interest was identified, the suppliers did not declare such interest in 51% of instances,
while the employee did not declare in 60% of instances. This is an improvement from the prior
year in that 84% of suppliers had not declared in 2010-11.
Findings on unfair and uncompetitive bidding were raised at 62% of auditees, which was
unchanged from the prior year. The most common findings related to competitive bidding and
quotation processes not followed and the non-submission by suppliers of their tax certificates and
declarations of independence. The preference point system was also not always applied in the
procurement process.
Although findings on material non-compliance reduced, auditees incurring unauthorised,
irregular as well as fruitless and wasteful expenditure remained high with 92% of auditees
incurring such expenditure.
Unauthorised expenditure of R1 029,4 million was incurred by 18 (69%) auditees, four more
than in the 2010-11 financial year and R752,7 million more.
Irregular expenditure of R66,6 million was incurred by 20 (77%) auditees. The number of auditees
incurring irregular expenditure increased by one (5%) but the value decreased by R176,2 million (73%).
Fruitless and wasteful expenditure of R7,8 million was incurred by nine (35%) auditees. The number of
9

Aspect Indicator Key outcomes and trends
expenditure increased
by R1,5 million
auditees incurring fruitless and wasteful expenditure increased by two (28%) and the value by R1,5
million (24%).
The average overall vacancy rate for 26 municipalities at year-end was 12%. The highest vacancy rate
was at George with 48% and the lowest at Witzenberg with 3%.
Vacancy rate
The average vacancy rate at senior management level for municipalities at year-end was 14%. The
highest vacancy rate was at Overberg District with 45% and the lowest at Overstrand with 2%.
Auditor-General of
South Africa’s
focus area – human
resource
management
Performance
management
At 14 (54%) auditees the overall vacancy rate has increased since 2010-11.
A total of two (8%) of the municipal managers appointed in the province did not have signed
performance agreements for 2011-12.
At one (4%) auditee, 20% or more of the senior managers did not have signed performance
agreements for 2011-12.
Appropriate performance management systems were not established at three (12%) auditees to
monitor, measure and evaluate the performance of officials other than the municipal manager and
senior management.
Financial reporting
assistance
provided by
consultants
Minimum competencies
Effective use of
consultants
By 30 June 2012 (six months from the effective date of the relevant regulations), nine (38%) of the
appointed municipal managers in the province had not yet met the minimum competency levels
defined in the regulations.
The cost of assistance on financial reporting provided by consultants to auditees is estimated at
R13,4 million (2010-11: R14,7 million) for the 2011-12 financial year, i.e. an average in excess of
R0,7 million per auditee.
The reported extent of skills transfer by consultants to municipal staff was noted as a concern
at seven (37%) of the municipalities that had engaged consultants.
Thirteen of the 15 municipalities that used consultants to prepare financial reports, submitted
financial statements that were subject to material adjustments from the audit process, mostly due
to the late engagement with the consultants.
10

Aspect Indicator Key outcomes and trends
Auditor-General of
South Africa’s
focus area –
information
technology
management
Auditees’ systems
of internal control
Audit committees
and internal audit
units
Auditor-General of
South Africa’s
focus area –
financial health
Assurance
provided by key
role players
Municipal public
accounts
Challenges with the
design of IT controls
Significant deficiencies
decreasing
Effectiveness of audit
committees
Going concern
Financial health
Limited impact
Municipal public
accounts committees not
The majority of municipalities experienced challenges with the design of information technology
controls. Adequate progress had not been made in addressing prior findings as risks remained in all of
the focus areas.
Municipalities have made progress in addressing significant internal audit deficiencies in
leadership, financial and performance management and governance components.
Audit committees were in place at all auditees and internal audit units were in place at 24
(92%) of the auditees, but at 13 (50%) of the auditees the audit committees were not making a
positive impact on the audit outcomes.
It was reported that two district municipalities had uncertainty regarding their ability to continue as
a going concern.
The financial statements of two (7%) auditees disclosed that a material uncertainty existed with regard
to their ability to continue as a going concern.
A total of 50% of municipalities reported on recorded a net deficit for the year under review.
Other areas of concern were the significant underspending of the capital budgets of district
municipalities contributing to the non-achievement of performance targets and the creditor
payments period that was shorter than the debtor collection period, which may result in cash flow
problems for municipalities.
At an overall level, the key role players in local government provided some assurance. As is evident
from the audit outcomes presented in this general report, the activities and interventions of role players
had limited impact. The assessment of ‘no significant identified impact’ does not imply that no efforts
were made by the role players, but illustrates that the impact on the audit outcomes was not yet evident.
Significant strides were still needed if the required level of assurance is to be provided for credible
decision-making.
The municipal public accounts committees (MPAC) have not had the desired impact on audit outcomes
and clean administration in local government due to their late establishment and/or non-establishment.
11

Aspect Indicator Key outcomes and trends
committees yet established MPACs were not established at 17 (65%) of the municipalities at 30 June 2012. There is a long way to
go before MPACs will achieve their intended oversight effectiveness and impact on audit outcomes. The
leadership and oversight structures, in liaison with the AGSA, are encouraged to support the work of
these committees.
Status of
commitments from
key role players
Root causes of audit outcomes
Some impact
The commitments made by the various role players, such as the premier; members of the
executive council for finance and local government; the joint coordinating departments, provincial
treasury and local government, to guide, support coordinate and monitor local government have
translated into some impact on the audit outcomes of municipalities, although more concentrated
efforts in this regard would be required to see greater results in the form of improved clean audit
outcomes.
• Key positions vacant or key officials lacking appropriate competencies
• Lack of consequences for poor performance and transgressions
• Slow response by political leadership in addressing the root causes of poor audit
Good Concerned Poor
12

SECTION 2: OVERVIEW OF AUDIT OUTCOMES
This section provides the 2011-12 local government audit outcomes (section 2.1), followed by further details on findings arising from the audit of the
financial statements (section 2.2), reporting by auditees against their predetermined objectives (PDOs) (section 2.3) and compliance by auditees with
key laws and regulations (section 2.4).
Root causes of audit findings and recommended best practices are presented in section 3.
2.1 Summary of audit outcomes
2.1.1 Summary of overall audit outcomes
Local government in the province comprises one metro, five district municipalities, 24 local municipalities and two municipal entities.
The audits of 26 of the 28 auditees that had submitted financial statements by 31 August 2012, or by 30 September 2012 in the case of consolidated financial
statements, were completed within the legislated time frame of three months from receipt of the financial statements.
Arising mainly from late submission of financial statements for auditing, the audits of four (13%) auditees had not been finalised as at 31 March 2013, which
was the cut-off date set by the AGSA for inclusion of their audit outcomes in this general report. The status and these outstanding audits are provided in
section 2.1.4.
The audit outcomes of the 2011-12 financial year for audits completed by 31 March 2013 and the audit outcomes of the prior year are summarised in table 2
below.
Where applicable, audit opinions relate to the consolidated financial statements of auditees. ‘With findings’ denotes findings on PDOs and/or compliance with
laws and regulations.
Clean audit outcomes are achieved when the financial statements are unqualified and there are no reported audit findings in respect of either reporting on
PDOs or compliance with laws and regulations.
13

Table 2: Summary of audit outcomes for current and prior years
Audit outcomes
Total
Cape Town Metro District Municipalities Local Municipalities
2011-12 2010-11 2011-12 2010-11 2011-12 2010-11 2011-12 2010-11
Unqualified with no findings (clean audits) 5 2 0 0 1 1 4 1
Unqualified with findings 20 23 1 1 4 3 15 19
Unqualified financial statements 83% 83% 100% 100%
100%
80% 79% 83%
Qualified opinion, with findings 1 3 0 0 0 1 1 2
Adverse opinion, with findings 0 0 0 0 0 0 0 0
Disclaimer of opinion, with findings 0 2 0 0 0 0 0 2
Number of audit reports not issued by 31 March 2013 4 0 0 0 0 0 4 0
Outstanding audits and qualified financial statements 17% 17% 0% 0%
0%
20% 21% 17%
Total number of audits 30 30 1 1 5 5 24 24
Findings on reporting on PDOs only 0 0 0 0 0 0 0 0
Findings on compliance with laws and regulations only 9 7 0 1 2 1 7 5
Findings on both PDOs and compliance 12 21 1 0 2 3 9 18
Total number of audits "with findings" 21 28 1 1 4 4 16 23
Legend:
Significant
improvement
Significant
regression
Seventeen (65%) of the auditees avoided qualified financial statements by correcting the material misstatements identified during the audit process. If the
misstatements were not corrected, the unqualified financial statements would have effectively decreased from 25 to eight, as shown in the table below:
Total Cape Town Metro District municipalities Local municipalities
Unqualified financial statements 8 0 2 6
Also refer to section 2.2.1 for further detail.
Annexure 1 lists all auditees with their current and prior year audit outcomes. While the preceding table showed the net change in audit outcomes from the
prior year, the following figure highlights the detail of improvement and regression that caused the net change.
14

Figure 1: Improvement and regression in the audit opinions
Net improvements = 5
Improvements = 6
Local = 3
Clean audit
(Unchanged = 2)
(New auditees = 3)
District = 1
Local = 2
3 3
Unqualified –
with findings
(Unchanged = 17)
(New auditees = 3)
Qualified – with findings
(Unchanged = 0)
(New auditees = 1)
Adverse/ disclaimed –
with findings
(Unchanged = 0)
Regressions =1
1
Local = 1
Unqualified - with no findings Unqualified - with findings Qualified - with findings
Adverse/ disclaimed - with
findings
15

It is clear from the audit outcomes table and the preceding figure that the audit outcomes of the majority of the auditees remained in the category
unqualified with material findings on their reporting on PDOs and/or compliance. The following figure shows the improvement and regression of the
auditees in these areas.
Figure 2: Improvement and regression in findings on predetermined objective and compliance
Improvements = 10
Local = 2 Local = 1
2
1 6
Local = 5
District = 1
Net improvement = 8
Regressions = 2
No findings
(Unchanged = 2)
(New auditees = 3)
PDO findings only
(Unchanged = 0)
Compliance findings only
(Unchanged = 3)
(New auditees = 6)
Both PDO and compliance
findings
(Unchanged = 10)
(New auditees = 2)
2
Metro = 1
Local = 1
No findings
PDO findings only
Compliance findings only
Both PDO and compliance
findings
16

The following observations are made regarding the overall audit outcomes and the improvement and regression since the prior year:
Table 3: Significant aspects of the 2011-12 audit outcomes
Indicator
Key outcomes and trends
Overall audit outcomes
Of the 26 municipalities reported on in 2011-12, six improved, one regressed and 19 remained unchanged. Of these
municipalities five received a financially unqualified opinion with no other findings (clean audit outcomes), 20 received a
financially unqualified opinion with other findings, while one received a qualified opinion.
Three municipalities improved from financially unqualified with findings to clean audit outcomes, namely George,
Langeberg and Mossel Bay.
Progression to clean
audit outcomes
George’s leadership took the AGSA’s message seriously and responded quickly to the recommendations made to
address the issues that led to the adverse audit opinion in the 2009-10 audit. The leadership set the tone from the top by
getting involved in addressing audit queries through effectively monitoring a credible action plan to address the past audit
findings. The municipal manager drove this process and emphasised the importance of the first-level review of information
to ensure that it is valid, accurate and complete by the time it gets to him and subsequently reported in the financial
statements. The municipality also effectively used and monitored the consultants appointed to prepare the financial
statements, which also contributed to the reduced material misstatements identified during the audit. This allowed the
municipality to progress from an adverse opinion in 2009-10 to financially unqualified with findings in 2010-11 and then to
financially unqualified with no findings in the year under review.
The use of consultants by the municipality has gradually reduced over the years with them only preparing key disclosures
and reviewing other financial statement sections prepared by the municipality. A permanent chief financial officer (CFO)
was appointed in September 2012, which should further reduce the municipality’s dependence on consultants and also
ensure sustainability of the outcome.
Langeberg submitted its financial statements late in the prior year due to management not exercising sufficient oversight
over the work of consultants who assisted the municipality with the unbundling of the fixed assets and the updating of the
fixed asset register. The manager: budget was responsible for the preparation of the financial statements, but the position
was vacant in the prior year, which resulted in material errors in the financial statements submitted in 2010-11.
This position was filled during the year under review and consultants were also appointed to perform high-level reviews on
the financial statements prior to submission for auditing. The material corrections identified during the audit were deemed
material for non-compliance reporting due to them being assessed as isolated instances and not a breakdown in internal
17

Indicator
Key outcomes and trends
control, as per the AGSA reporting. The municipality was likely to continue using consultants to review the financial
statements prior to submission for auditing, which will assist in sustaining the improved audit outcome.
Mossel Bay had compliance findings on asset management, procurement and contract management and PDOs in the
prior year. The municipality failed to perform regular asset counts and reconciliation of its asset register, which led to
material misstatements related to assets in its financial statements. The leadership of the municipality responded quickly
to the AGSA’s recommendations and performed monthly reconciliation of its asset register.
Management also monitored the controls around the review of supplier declarations to ensure that they were all signed
and complete. Suppliers were also encouraged to submit regular declarations whenever there were changes that might
affect the municipality. Management performed a detailed review of performance information before it was submitted for
auditing, which eliminated their non-compliance finding on performance information.
The controls instituted by Mossel Bay were still in place during the most recent key control visit, which indicates that the
improved audit outcomes will be sustainable.
Two municipalities maintained their clean audit outcome status, namely Swartland and West Coast District.
Sustaining clean audit
outcomes
Swartland maintained its clean audit outcome status from the prior year mainly due to strong leadership which set the
tone from the top and instilled a culture of good governance and monitored the municipality’s internal controls to ensure
that they operate effectively. Furthermore, the leadership and management addressed the internal control deficiencies
that were reported in the prior audits’ management reports through the implementation and ongoing monitoring of action
plans during the year under review. Progress reports on the implementation of the action plan were also monitored and
reviewed by the audit committee on a quarterly basis. The audit committee also reported to the council bi-annually on their
monitoring of the action plan, as well as the progress of the internal audits.
West Coast District maintained its clean audit outcome status through the sustained efforts of the municipal leadership to
monitor key controls, especially in supply chain management (SCM). The internal audit unit and the audit committee also
assisted management to further strengthen internal controls over financial and performance reporting, as well as
compliance with laws and regulations and recommended and monitored corrective actions where weaknesses were
identified.
Regression to qualified
audit opinions
Bergriver regressed from a financially unqualified with findings to a qualified opinion due to the incorrect determination by
the municipality that emergency inventory kept was not material and, therefore, not accounted for in the financial
statements. In addition, they did not have adequate systems in place to maintain records of acquisitions and issues of
emergency inventory, which resulted in it not being possible to determine the accuracy and completeness of the
18

Indicator
Key outcomes and trends
corresponding figure for this inventory. The situation has been the same for a number of years, but the value was always
assessed as immaterial. As a result of consistent probing by the auditors, the municipality agreed to count and value the
inventory in the current year. The conclusion was that the emergency inventory amount was material and the lack of
systems made it impossible to value the prior year’s inventory (comparative figure) by the time the audit was concluded.
Furthermore, there was no one in a leadership position to ensure that the CFO, internal audit unit and the audit
committee performed a proper review of the financial statements before submission for auditing, owing to the CFO
acting as the municipal manager for the period until the financial statements were due for auditing. The CFO’s
deputy was also on maternity leave for a large part of the audit, which impacted negatively on the ability of the
municipality to resolve audit queries on time.
Three municipalities improved from qualified to financially unqualified with findings, namely Overberg District, Laingsburg
and Prince Albert.
Overberg District was qualified in the prior year due to not having a proper system to make sure that their infrastructure
assets were valid, accurate and complete. The municipality failed to perform regular counts of infrastructure assets and
reconciliation of its asset register, which led to the following challenges: missing barcode numbers, duplicate barcode
numbers, assets not being located for physical verification or not matching the description in the asset register.
Movement towards
unqualified audit opinions
The municipality incurred a net loss for the year ended 30 June 2012 and, as of that date, the municipality’s total liabilities
exceeded its total assets. Vacancies could not be filled due to a lack of funds, resulting in capacity constraints which led to
non-compliance with numerous laws and regulations. High fees were also paid to consultants to perform functions of
officials that were suspended with remuneration.
In the year under review the municipality relied on appointed consultants to reconcile the fixed asset register and also help
with the preparation of the financial statements. The reliance on consultants was not sustainable as the municipality was
unable to attract and retain a CFO with the required skills to do the job. The suspended employees also impacted on the
transfer of skills from the consultants to the municipality.
The municipality received a qualified conclusion on PDOs, although this was an improvement from the disclaimer in 2010-
11.
As a result of this situation and the ongoing control deficiencies identified in the last key control visit, we were concerned
about the sustainability of the improved audit outcome.
19

Indicator
Key outcomes and trends
Laingsburg was qualified in the prior year because it was unable to correct material misstatements on distribution losses
for water, provision for environmental rehabilitation, inventory and corresponding figures pertaining to investment property
and intangible assets. The municipality struggled to attract appropriately qualified officials to support the management of
financial, performance reporting and compliance with laws and regulations, including internal controls related thereto, due
to its geographic location and limited financial resources. Furthermore, the leadership of the municipality did not
appropriately train the existing officials for the achievement of the municipal objective relating to financial and performance
reporting and compliance with laws and regulations, including internal controls related thereto.
The leadership of the municipality was slow in responding to recommendations made by the AGSA to address the internal
control deficiencies that led to the qualification in 2010-11. It largely relied on new consultants to assist to correct the
many material misstatements that were identified during the current year’s audit. Because of the municipality’s overreliance
on consultants and the fact that it will need the provincial treasury and local government to assist with training and
up-skilling of its existing employees, the improved audit outcome may not be sustainable.
Prince Albert was qualified in the prior year because of their inability to correct material misstatement on value-added tax
(VAT) and income from fines. The municipality then did not monitor the work done by the service provider appointed to
collect income from fines to ensure that they performed the services in accordance with the service level agreement in the
past. The municipality subsequently took the service provider to court to enforce terms to implement systems in place to
ensure the completeness of revenue collected and agreed in their service level agreement.
The municipality struggled to attract appropriately qualified officials to support the management of financial, performance
reporting and compliance with laws and regulations, including internal controls related thereto due to its geographic
location and limited financial resources. As a result, reconciliations were not prepared between the creditor’s ledger and
the subsidiary ledger and no reconciliation was performed between the VAT control account and the accounts receivable.
Consequently, transactions and events were misstated in the financial statements.
Unqualified with findings
– stagnation
Consultants were appointed to prepare the financial statements for the municipality as they did not have the technical
expertise and people. The municipality relied on the appointed consultants to assist it to reconcile its VAT account and
correct all material misstatements that were identified in the audit process. Because of the municipality’s over-reliance on
consultants and the fact that it would need the provincial treasury and local government to assist with training and upskilling
of its existing employees, the improved audit outcome may not be sustainable.
Although the municipalities responded to the AGSA messages on areas of non-compliance and PDOs and implemented
action plans, municipalities were still not heeding our call to regularly prepare financial statement as the leadership did not
require this from its officials. They also did not see the value in preparing regular financial statements. At some
20

Indicator
Key outcomes and trends
municipalities, key officials lacked the skills and competencies to allow for regular preparation of financial statements and
they relied on consultants to assist with the annual financial statements.
Management did not conduct proper reviews of financial information, thus failing to ensure its credibility. As a result these
municipalities relied on independent assurance from third parties to confirm credibility of their financial information instead
of their own internal controls.
This has led to these municipalities remaining financially unqualified with findings despite significant improvements in
findings on compliance with laws and regulations and PDOs.
Overall outcomes on
PDOs and compliance
with laws and regulations
Overall outcomes on
compliance with laws and
regulations
There were municipalities that still failed to address findings previously reported as they implemented our
recommendations too late to have a meaningful impact on the next audit outcome, which led to recurring findings on
compliance with laws and regulations and PDOs.
Since 2010-11 no auditees remained with PDO findings only. There has also been a steady decline in auditees with
findings on both PDOs and compliance with laws and regulations from 69% to 46%.
Material findings on non-compliance with laws and regulations were reported for 21 (80%) auditees. There was
a marginal improvement when compared to the 24 (92%) in the prior year. Three (12%) auditees addressed their
prior year findings on compliance, while two (8%) auditees maintained their status of no findings on compliance with
laws and regulations.
21

Indicator
Key outcomes and trends
Audits of four municipalities had not been finalised as at 31 March 2013, the cut-off date set by the AGSA for inclusion of
their audit outcomes in this analysis.
The auditees whose audits are not included in this analysis received disclaimer (Kannaland and Swellendam) and
financially unqualified with findings (Oudtshoorn and Cederberg) audit opinions in 2010-11.
Outstanding audits
The main drivers of delays are:
• poor planning to take appropriate action to enable the complete and accurate unbundling of assets
• key control accounts related to assets, debtors and VAT were not regularly reconciled, including the non- or late
clearance of suspense accounts
• inadequate capacity and staff not being sufficiently knowledgeable concerning the GRAP account framework to
prepare quality financial statements or perform meaningful reviews of annual financial statements prepared by
consultants
• failure by management to review and effectively monitor the performance of consultants appointed to assist with
accounting-related work and compiling of the annual financial statements.
We had identified these risks during our quarterly evaluation of key controls and in spite of assurances given to our staff
during these discussions, the municipal leadership failed to develop and monitor the implementation of key controls,
including the development and monitoring of credible action plans to address past audit findings. The continued
ineffectiveness of the governance structures (internal audit units and audit committees) at these municipalities as well as
ineffective oversight by the municipal councils also contributed to the failure of the municipal leadership to submit financial
statements within the legislated deadline.
Good Concerned Poor
22

2.1.2 Five-year progress towards clean audits
Producing unqualified financial statements is an important milestone towards clean audit outcomes – but not the ultimate objective. The five-year
progress made by local government towards obtaining unqualified audit reports with no findings (i.e. clean audit outcomes) is shown in the following
figure.
Figure 3: Five-year progress towards unqualified financial statements
4%
7%
17%
75%
79% 69%
76%
67%
?
25%
21%
27%
17% 17%
2007-08 2008-09 2009-10 2010-11 2011-12 2013-2014
Unqualified with no findings Unqualified with findings Qualified/ adverse/ disclaimed with findings (including audits outstanding)
23

In 2011-12, one district municipality and four local municipalities received clean audit outcomes. These auditees, however, represent only 17% of auditees in
the province.
Audit outcomes for municipalities in the province were improving at a slow pace, with some improvement across the three facets of our audit, namely (i)
financial statements, (ii) reporting against PDOs (service delivery reporting); and (iii) compliance with laws and regulations.
Despite the commitments from the municipal leadership, the majority of municipalities have been slow in moving towards clean audit outcomes with 17
remaining unchanged with financially unqualified audit opinions with findings from 2010-11 compared to 2011-12. We have not yet seen the desired impact of
the operation clean audit programme and the local government financial management improvement plans and turnaround strategy on these auditees.
At this rate it appears unlikely that municipalities in the province will achieve the Operation clean audit 2014 goal of 100% clean audit outcomes. The province
has the ability to do better and achieve much more. It is concerning that there were municipalities that failed to submit financial statements by the legislated
deadlines and have their audits completed within reasonable time. Four audits were still outstanding on 31 March 2013.
The 2010-11 audit outcomes improved compared to 2009-10 with fewer municipalities receiving qualified audit outcomes. The current financial year (2011-12)
reflects one qualified opinion compared to 2010-11, but this trend could be reversed by the expected audit outcomes of the four audits not yet finalised.
The ability of the municipalities to achieve clean administration will continue to be compromised unless they address the internal control deficiencies that result
in the qualified audit opinions and findings on compliance with laws and regulations and PDOs. In particular, the continued prevalence of material
misstatements in the financial statements submitted for auditing is evidence of weak internal controls, which is slowing down the achievement of clean audits.
The leadership should exercise its oversight responsibility and ensure that basic internal control disciplines are strictly adhered to in areas of financial
reporting, compliance with laws and regulations and PDOs. This can be achieved if the leadership sets a strong tone from the top that findings on compliance
with laws and regulations and PDOs, which are withholding municipalities from achieving clean audit outcomes, are not acceptable through appropriate
consequences for non-adherence and holding management accountable.
In addressing these internal control deficiencies, the leadership should enhance the ability of management to provide first-level assurance (management
assurance) about validity, accuracy and completeness of financial and performance information and compliance with laws and regulations by strengthening
human resources capacity and ensuring its productivity. Attention should also be paid to the credibility of management information and the production of more
regular financial statements.
The progress made by auditees that achieved clean audit outcomes will require greater effort from the municipal leadership to decisively address the internal
control deficiencies that could compromise their ability to sustain clean audit outcomes.
24

2.1.3 Useful and reliable reporting against predetermined objectives and compliance with laws and regulations – three-year
progress
In order to obtain clean audit opinions auditees should report annually on the achievement of their PDOs in a useful and reliable manner and their audit
reports should not contain material findings on compliance with laws and regulations. The three-year progress made by local government in the province
towards meeting these requirements is shown in the following figure.
Figure 4: Three-year progress in addressing findings on predetermined objectives and compliance with laws and regulations
80%
69%
Findings on both PDOs and
compliance with laws and
regulations
(12 auditees)
46%
23%
35%
Findings on compliance with
laws and regulations only
(9 auditees)
12%
4%
0% 0%
PDO findings only
(0 auditees)
2009-10 2010-11 2011-12
It is encouraging to note that since 2010-11 there has been no auditees remaining with PDO findings only. There has also been a significant decline in
auditees with findings on both PDOs and compliance with laws and regulations. The increasing trend in auditees with non-compliance with laws and
regulations findings only was as a result of auditees addressing PDO findings while non-compliance findings remained.
Refer to section 2.3 and 2.4 for a detailed analysis of findings on PDOs and compliance with laws and regulations.
25

2.1.4 Status and outcomes of audits not finalised by 31 March 2013
Timely completion of audits within the legislated timelines was primarily influenced by the date on which the AGSA received municipalities’ financial
statements for auditing and the efficiency with which the audits proceeded until completed. The figure below indicates that a total of four (13%) auditees
were unable to submit financial statements for auditing by 31 August 2012 (30 September 2012 in the case of consolidated financial statements), as
required by the MFMA.
Figure 5: Timeliness of submission of annual financial statements for auditing
AFS submitted on
time
26 (87%)
AFS submitted
late
4 (13%)
Audits of four municipalities had not been finalised as at 31 March 2013, the cut-off date set by the AGSA for inclusion of their audit outcomes in this analysis.
26

Between 1 April 2013 and the date of this general report, one more audit was finalised, but its outcome was not included in the analysis contained in this
report. Details of this audit outcome are presented in the following table.
Table 4: Outcomes of audits finalised after 31 March 2013
Auditee
2011-12
audit opinion
2010-11
audit opinion
Movement
from 2010-11
audit opinion
Oudtshoorn Municipality Unqualified with findings Unqualified with findings
Improvement Unchanged Regression
Although Oudtshoorn managed to submit its financial statements on time, the ongoing administrative instability due to the suspension and dismissal of the
municipal manager had an adverse impact on the 2012 audit. The senior managers were all in acting positions for the first six months of the financial year and
permanent appointments were only made in January 2012. This led to the municipality failing to design and implement appropriate controls over information
technology (IT) systems to ensure the reliability of the systems and the availability, accuracy and protection of information. They did not have a back-up for
systems and could not recover information timeously when the system failed, which delayed the audit. Furthermore, the 2011-12 audit could not be finalised
before the 2010-11 audit was finalised. The 2010-11 audit was finalised on 6 February 2013.
The following table shows the reasons for the remaining audits being outstanding at the date of this report with an indication of the prior year audit
outcomes.
Table 5: Prior year outcomes of audits outstanding at the date of this report
Auditee
Financial
statements not yet
received
Reason not finalised
Late receipt of
financial
statements
Audit still in
progress due to
other reasons
Expected date
of finalisation
Year AFS last
finalised
Audit outcome of
audit last finalised
Swellendam Municipality x June 2013 2010-11 Disclaimed
Cederberg Municipality x June 2013 2010-11
Financially
unqualified with
findings
Kannaland Municipality x June 2013 2010-11 Disclaimed
Total 3
27

Swellendam experienced a breakdown in internal controls and a lack of leadership oversight caused by political and administrative instability (changes in
municipal manager and CFO, as well as the court case to determine who should be the mayor and govern the municipality), while key vacancies at the
finance unit remained a problem, which the leadership failed to address in a timely manner. This resulted in its failure to implement basic financial disciplines
during the course of the financial year. These include areas of record keeping and management, reconciling control accounts on a monthly basis and also
clearing suspense accounts on a monthly basis.
Action plans to address the prior year’s disclaimer of opinion and internal control deficiencies (non-performance of bank reconciliations, clearing suspense
accounts and updating the asset register) were not effectively monitored by the leadership.
The late finalisation of the 2011 audit impacted on the municipality’s ability to prepare and submit financial statements for auditing. The current leadership is
trying to address the municipality’s legacy of disclaimers, which is taking longer than expected.
Cederberg’s finance staff did not maintain the required information to enable the appointed consultants to prepare a complete and accurate asset register to
be used in the preparation of the financial statements.
The consultants contracted to assist the municipality with the unbundling of the fixed assets and the updating of the fixed asset register, were appointed close
to year-end. This was worsened by the leadership’s inadequate monitoring of the consultants, as well as the continued ineffectiveness of the internal audit unit
and audit committee.
Plans to address the deficiencies in asset management reported previously by the AGSA were not effectively monitored due to political and administrative
instability during the year under review. There was a change of council at the municipality due to bi-elections, which resulted in the municipal manager
resigning in November, stating that his philosophy was not compatible with that of the new council. The new council then replaced all the experienced senior
managers.
Furthermore, the fraud risk at Cederberg was assessed as significantly high. This required additional audit work, which further delayed the conclusion of the
audit.
Kannaland had a history of disclaimers and political instability caused by frequent changes in the political leadership of the municipality and the lack of
ownership by the administrative leadership to address internal control deficiencies. Related to this instability, the positions of the previous municipal manager
and the CFO who left the employ of the municipality and key vacancies in the finance unit were not filled in a timely manner. This has resulted in its continued
failure to implement basic financial disciplines during the course of the financial year. Action plans to address the prior years’ adverse opinion were not
effectively monitored by the leadership.
The situation was made worse by the destruction of the supply management office and the related supporting documents by a fire in August 2011 and a lack
of back-up supporting information. This caused major delays in the finalisation of the 2010-11 audit and the municipality could not submit 2011-12 financial
statements before the prior year audit was concluded. The 2010-11 audit was finalised on 20 January 2013.
28

2.2 Findings arising from the audit of financial statements
2.2.1 Material misstatements in financial statements
Outcomes if misstatements were not corrected
65% of auditees
avoided
qualification
Outcomes after correction of misstatements
Unqualified
8 (31%)
PY: 12 (46%)
Qualified/
disclaimed
18 (69%)
PY: 14 (54%)
Material
misstatements
corrected during
the audit process
Unqualified
25 (96%)
PY: 23 (88%)
Qualified/
disclaimed
1 (4%)
PY: 3 (12%)
2011-12: 100% = 26 auditees
Some corrected
1 (4%)
PY: 3 (12%)
All corrected
17 (65%)
PY: 11 (42%)
No material
misstatements
8 (31%)
PY: 12 (46%)
Cape Town Metro District municipalities Local municipalities Total
100%
0%
60%
40%
65%
30%
5%
65%
31%
4%
0%
0%
Auditees with no material misstatements
Auditees that submitted financial statements for audit with
material misstatements subsequently corrected
Auditees with uncorrected material misstated financial
statements
29

The purpose of the annual audit of the financial statements is to provide the users thereof with an opinion on whether the financial statements fairly
present, in all material respects, the financial position (statement of financial position) and results of an auditee’s operations (statement of financial
results) and cash flows for the reporting period in accordance with the applicable accounting framework and the requirements of the applicable
legislation.
The audit provides the users with assurance on the degree to which the financial statements are reliable and credible on the basis that the audit
procedures performed did not identify any material errors or omissions therein.
The quality of financial statements submitted for auditing
The majority of auditees analysed (96%) submitted their financial statements by the legislated deadline of 31 August 2012 (25 of 26), but as shown above
many of these were of poor quality as they contained material misstatements in one or more area. Eight (31%) municipalities submitted financial statements
that required no material adjustments, compared to 12 (48%) in the prior year.
Seventeen (65%) [2010-11: 11 (42%)] auditees received a financially unqualified audit outcome because they had corrected all the misstatements the AGSA
identified during the audit. Misstatements corrected were reported as material non-compliance for the 17 auditees, as well as for Bergriver which received a
qualified opinion. The continued reliance on the auditors to identify corrections to be made to the financial statements in order to obtain an unqualified audit
opinion is not a sustainable practice. Furthermore, it places undue pressure on legislated deadlines and increases the audit fees.
The inability to produce credible and reliable financial statements is evident across all types of auditees/districts with only two district municipalities and
one local municipality submitting financial statements without material misstatements.
Uncorrected material misstatements in financial statements resulting in qualified, adverse or disclaimed audit opinions
One (4%) auditee, Bergriver, failed to correct all the material misstatements identified during the audit process due to unavailability of information or
documentation required to determine the correct amounts to be reflected in the financial statements. This auditee could therefore not avoid a qualified
audit opinion. Section 2.2.2 provides more detail on the areas in the financial statements that were misstated.
30

2.2.2 Financial statement qualification findings.
Figure 6: Progress on and nature of most common financial statement qualifications
Property, infrastructure, plant and equipment Current assets Other disclosure
100% 100% 100%
8%
1 auditee
8%
4%
4%
Progress Nature of findings Progress Nature of findings Progress
Nature of findings
Progress:
Nature of qualification
Prior year qualifications addressed New qualifications Repeat qualifications
Existence/ occurrence Valuation/ accuracy Completeness
31

The three most common qualification areas of 2011 are shown in figure 6 with the progress made by auditees in addressing prior year qualifications and the
basis of the current year qualification. The table below provides the reasons for the qualification.
Table 6: Qualification area
Qualification
area
Current assets
Basis for qualification
Completeness, valuation and
existence of the disclosed
inventory
Reason for qualifications
The incorrect determination by the municipality that emergency inventory
kept was not material and, therefore, not accounted for in the financial
statements.
The municipality did not have adequate systems in place to maintain records
of acquisitions and issues of emergency inventory, which resulted in it not
being possible to determine the accuracy and completeness of the
corresponding figure for this inventory.
Refer to annexure 1 for further details regarding auditees’ progress in addressing their prior year qualification findings.
32

2.3 Findings arising from the audit of reporting on predetermined objectives
2.3.1 Overall outcomes from the audit of reporting on predetermined objectives
Movement in number of auditees with findings on PDOs
Unchanged with
findings
10 (38%)
Regressed 2 (8%)
54%
(14)
35%
(9)
Improved
7 (27%)
Unchanged with no
findings
7 (27%)
46%
(12)
65%
(17)
2011-12
(26)
2010-11
(26)
Auditees with PDO findings
Auditees with no PDO findings
Non-compliance with legislation relating to strategic
planning, performance management and reporting
30% (6)
80% or less of planned targets fully achieved
100% (1)
80% (4)
65% (13)
Material adjustments made to annual performance
reports
60% (3)
40% (8)
Metro District Municipalities Local Municipality
Metro District Municipalities Local Municipalities Total
100%
0%
40%
40%
60% 60%
55%
15% 23%
15% 10% 8%
7% 20%
15%
55%
54%
Findings on both usefulness
and reliability
Findings on usefulness only Findings on reliability only No PDO findings
33

The Public Audit Act, 2004 (Act No. 25 of 2004) (PAA) requires the AGSA to audit annually the reported information relating to the performance of the
auditees against their PDOs. The overall audit outcomes on the audit of PDOs shown in the above figure indicate an improvement in the number of
auditees that had no PDO findings.
Table 7: Key trends in findings on predetermined objectives
Indicator
Key findings
Findings reduced
Compliance
reduced
Planned targets
not met
Annual report
corrections
Fourteen (54%) [2010-11: nine (35%)] of the reported auditees received PDO audit outcomes that did not have findings. This
represents an improvement of seven (27%) during the period under review.
Six (23%) [2010-11: nine (35%)] auditees had material compliance findings relating to PDOs. The most prevalent of these
findings related to strategic planning and performance management, performance reporting, internal audit units and audit
committees.
Eighteen (69%) municipalities did not meet at least 80% of their planned targets.
Eleven (42%) of the auditees’ annual performance reports had errors that were corrected as a result of the audit.
Good Concerned Poor
34

2.3.2 Findings on predetermined objectives
Figure 7: Progress on and nature of predetermined objectives findings
Usefulness: 2011-12: 4 auditees (2010-11: 14 auditees)
Reliability: 2011-12: 10 auditees (2010-11: 13 auditees)
19%
s
e
ite
d
u
a
4
46%
8%
8%
Progress
Nature of findings
s
e
ite
d
u
a
0
1
8%
31%
Progress
31%
12%
4%
Nature of findings
Progress:
Prior year PDO findings addressed New PDO findings Repeat PDO findings
Nature of
Presentation Consistency Relevance Measurability
findings: Accuracy Validity Completeness
Progress made by auditees in addressing prior year findings and the nature of current year audit findings are shown in figure 7.
The usefulness of reported information is measured against the criteria of presentation, consistency, measurability and relevance. The information
contained in the performance reports of four (16%) [2010-11: 14 (54%)] auditees was not useful.
35

Findings on reliability relate to whether the reported information on performance against PDOs could be traced back to the source data or
documentation and whether the reported information was accurate, complete and valid when compared to the source data, evidence or documentation.
The information contained in the performance reports of 10 (39%) [2010-11: 13 (50%)] auditees was not reliable.
The most prevalent types of findings are presented in the table below.
Table 8: Usefulness and reliability of reported information
Category of PDO findings
Reported information not
useful
Reported information not
reliable
Most prevalent types of findings
• The indicators/measures were not well defined to ensure that performance data will be collected consistently and
easy to understand and use.
• Performance targets were not specific and/or measurable to ensure that the required performance can be measured.
• Supporting information for reported performance information was not complete.
• Reported performance information was not accurate when compared to supporting information.
• Reported performance information was not valid when compared to supporting information.
36

2.4 Findings arising from the audit of compliance with laws and regulations
2.4.1 Overall outcomes from the audit of compliance with laws and regulations
Common areas of non-compliance
Movement in number of auditees with findings on
compliance
Material misstatement / limitations in submitted Annual
Financial Statements
14
54%
18
69%
Regression
Unauthorised, irregular as well as fruitless and wasteful
expenditure
12
46%
21
80%
Decreased,
still high
Unchanged
with findings
21 (80%)
Improved
3 (12%)
Unchanged
with no
findings
2 (8%)
Procurement management
Audit committees
Internal audit
10 38%
10 38%
10 38%
9 35%
11 42%
22
Remains high
Decreased,
still high
85%
Decreased,
still high
Budgets
8
8
31%
31%
Remains high
Overall decrease of 12% over 2010-11
Asset and liability management
6
8
23%
31%
Regression
2012 2011
Cape Town Metro District municipalities Local municipalities Total auditees
100%
80%
20%
80%
20% 80%
20%
Auditees with no compliance findings
Auditees with compliance findings
37

The PAA requires the AGSA to audit on an annual basis compliance with laws and regulations applicable to financial matters, financial management and other
related matters. The compliance audit was limited to the following focus areas: ■ Material misstatements in submitted annual financial statements ■ asset and
liability management ■ audit committees ■ budget management ■ expenditure management ■ prevention of unauthorised, irregular as well as fruitless and
wasteful expenditure ■ financial misconduct ■ internal audit ■ revenue management ■ strategic planning and performance management ■ transfer of funds
and conditional grants ■ procurement and contract management (SCM) ■ human resource management and compensation.
Annexure 1 lists all auditees where material non-compliance was reported in one or more of the AGSA’s compliance focus areas.
Depicted previously are the overall outcomes from the audits which show an overall decrease in the number of auditees that had findings on compliance.
Table 9: Key trends in non-compliance findings
Indicator
No compliance
findings
Two areas
decreased
significantly
Top three areas
Material
misstatements
Other noncompliance
Key findings
Auditees with no findings on compliance with laws and regulations improved from two (8%) to five (20%). Two auditees (Cape
Winelands District and Hessequa) addressed all prior year compliance findings and are one step away from clean audit
outcomes with only material misstatements in submitted financial statements remaining as a non-compliance finding.
Two areas of non-compliance decreased significantly:
• Unauthorised, irregular as well as fruitless and wasteful expenditure from 21 to 12 auditees (80% to 46%)
• Procurement management from 22 to 10 auditees (85% to 38%).
Compliance findings were prevalent across all three types of municipalities, the metro, district municipalities and local municipalities.
Twenty-one (80%) of the auditees had findings in one or more of the top three areas of non-compliance, namely (i) material
misstatements in submitted financial statements, (ii)unauthorised, irregular as well as fruitless and wasteful expenditure and (iii)
procurement management.
Material misstatements in submitted financial statements regressed from 14 to 18 auditees (54% to 69%).
Non-compliance related to audit committees, internal audit and budgets remained high with internal audit showing slight improvement.
Good Concerned Poor
38

2.4.2 Findings on compliance with laws and regulations
Figure 8: Common areas of findings on compliance with laws and regulations
Findings in top three areas of compliance (100%=21)
Findings in other areas of compliance (100%=21)
14%
48% 67%
33%
5%
10%
18
52% 52%
12
38%
10
19%
19%
19% 10%
10
33%
29%
9
14% 14%
14%
24%
8
24%
14%
8
Material misstatement/limitations
in submitted annual financial
statements
Unauthorised, irregular,
as well as fruitless and
wasteful expenditure
Procurement
management
Audit committees Internal audit Budgets Asset and liability
management
Prior year
compliance findings
addressed
New compliance
findings
Repeat compliance
findings
The figure shows progress made by auditees towards addressing prior year findings on compliance. The extent and impact of material misstatements/
limitations in annual financial statements submitted for auditing are analysed in section 2.2.1. Findings on procurement management are detailed in
section 2.4.4 and the extent and nature of unauthorised, irregular, as well as fruitless and wasteful expenditure in section 2.4.3. Details on the nature of
the most prevalent findings in other areas of non-compliance per type of auditee are provided below.
39

Table 10: Summarised findings in other areas of non-compliance
Nature of other areas of non-compliance per type of auditee
Audit committees: 10 auditees (38%) Internal audit: nine auditees (35%)
0%
20%
80%
0%
11%
89%
• No review of the annual financial statements [five (19%) auditees].
• No review of the adequacy, reliability and accuracy of financial
reporting and information [four (15%) auditees].
• The performance audit committee did not submit an auditor’s report to
the council regarding the performance management system at least
twice during the financial year [four (15%) auditees].
• The internal audit unit did not audit the results of performance
measurement / performance measurement was not audited
continuously [five (19%) auditees].
• No review of adequacy, reliability and accuracy of financial reporting
and information [four (15%) auditees].
• No internal audit function in place [two (8%) auditees].
Budgets: eight auditees (31%) Asset and liability management: eight auditees (31%)
0%
25%
75%
0%
12%
88%
• Expenditure was not in accordance with approved budget [six (23%)
auditees].
• Quarterly reports on implementation of budget and financial state of
affairs were not submitted to the council [three (12%) auditees].
• Proper control systems were not implemented for safeguarding and
maintenance of assets [four (15%) auditees].
• No/inadequate management, accounting and information system for
assets [six (23%) auditees].
Auditees with
findings:
Cape Town Metro District municipalities Local municipalities
Improvement Unchanged Regression
40

2.4.3 Findings arising from the audit of supply chain management
Movement in number of auditees with findings on
compliance
Summary of findings on supply chain management
Limitation on planned
scope of audit of awards
0%
3
12%
Reduction
Awards to employees and councillors or other
state officials
16 62%
58%
Increase
Unchanged
with findings
21 (80%)
Regressed
3 (12%)
Unchanged
Improved with no
1 (4%) findings
1 (4%)
Awards to close family members of employees
and councillors
Uncompetitive or unfair procurement processes
Inadequate contract management
1
2
5
8%
4
4
15%
15%
Same level
38%
Increase
16 62% Same level
16 62%
Internal control
deficiencies
19%
9
35%
Increase
Findings:
2011-12 2010-11
Overall increase of 9% over 2010-11
Awards not in compliance with legislation:
2011-12
Awards not in compliance with legislation:
2010-11
Metro District Local Total auditees
90%
92%
100%
100%
10%
8%
Auditees with no SCM findings
Auditees with SCM findings
41

The AGSA audits included an assessment of procurement processes, contract management and the related controls in place. To ensure a fair, equitable,
transparent, competitive and cost-effective SCM system, the processes and controls need to comply with legislation and minimise the likelihood of fraud,
corruption, favouritism as well as unfair and irregular practices. The assessment was performed at a total of 26 auditees.
Findings arising from the audit were reported in the management reports of 24 (92%) [2010-11: 22 (85%)] of the auditees, while in only 10 (38%) [2010-
11: 22 (85%)] of these cases the findings were material enough to warrant reporting thereof in the auditor’s report.
The previous figure presents the movement in the number of auditees with SCM findings, the prevalence of SCM findings across the categories of
auditees and a summary of SCM findings, with a comparison to the audit results of the 2010-11 financial year.
Key outcomes and trends are provided in the table below, followed by further analysis of the SCM findings.
Table 11: Key supply chain management outcomes
Indicator
Reduction in the
limitations
experienced in the
audit of SCM
Some reduction in
awards to employees,
councillors and other
state officials
Some reduction in
uncompetitive and
unfair practices
No change in
inadequate contract
management
Regression in
awards to family
members
42
Key findings
There was a complete reduction in the number of limitations experienced in the 2011-12 audit. In 2010-11 audit limitations
were experienced at three of the 26 auditees reported on, whereas in the 2011-12 year no limitations were experienced. This
indicated an improvement in record keeping that the required information related to procurement was available for auditing at
all auditees.
Although there was an increase in the number of auditees that transacted with employees, councillors and other state officials
from 58% to 62%, a further analysis revealed that the actual number of instances and rand value of these awards have
decreased. Refer to table 12 below for further detail. This was further evidenced by the fact that the number of material noncompliance
findings has decreased significantly from 14 auditees in 2010-11 to six auditees in 2011-12.
Although the number of auditees that did not follow the correct procedures when procuring goods and services remained
unchanged, a further analysis revealed that the actual number of instances and rand value of these awards have decreased.
Refer to table 14 below for further detail. This was further evidenced by the fact that the number of material non-compliance
findings has decreased significantly from the 12 auditees in 2010-11 to just six auditees in 2011-12.
This was an area of concern that needed to be closely monitored as it had the most impact in ensuring effective and efficient
service delivery. There has been no improvement in the number of auditees with findings although the number of material
findings decreased from four in 2010-11 to two in 2011-12.
There has been a regression in the number of auditees with awards to families. Although this was allowed in terms of the SCM
regulations the identification of these awards remained a concern and in 2011-12 there was only one auditee that had findings

Indicator
Key findings
while in 2011-12 there were 10. A possible reason for this was that in 2011-12 the data available to identify these awards was
only available at seven of the auditees reported on while in 2011-12 the data was available at all 26 auditees.
Significant
regression in internal
control deficiencies
This area has seen a regression. Although no material findings were included in the audit report, this indicates that auditees
had control deficiencies within the SCM processes which required attention. Should these deficiencies not be addressed, there
is a risk that the progress made above could be reversed. Refer to table 25 below for further detail.
Good Concerned Poor
Limitations on planned scope of the audit of awards
None of the 26 auditees reported on for the 2011-12 financial year experienced limitations.
Awards to employees and councillors or other state officials
SCM regulation 44 prohibits awards to persons or entities owned/managed by them if they are in the service of the auditee (i.e. employees and councillors) or
if they are in service of any other state institution. Such expenditure is also considered irregular. The audit included the identification of such prohibited
awards. Further testing was performed to determine whether the legislated requirements with regard to declaration of interest were adhered to.
The table below shows the extent and nature of these awards and whether any non-compliance with legislation was identified, with an indication of the
positions of the officials involved. Where prohibited awards were also identified in the prior year, the name of the auditee is highlighted in red.
43

Table 12: Prohibited awards to employees and councillors or other state officials
Auditee
Beaufort West
Bergrivier
Bitou
Breede Valley
Cape Winelands District
Number of
instances
Awards made to employees and councillors
Amount (R)
Positions
Awards made to
Supplier did not Employee or
Supplier did not
officials of other state
submit declaration of councillor did not
declare interest
institutions
interest
declare interest
Number of
Number of
Number of
Number of
Amount (R) Amount (R) Amount (R) Amount (R)
instances instances instances instances
1 6 170 1 6 170
2 85 965 1 84 765 1 1 200
3 59 163 3 59 163
2 30 827 2 30 827
2 54 314 2 54 314
City of Cape Town
Drakenstein
Eden District
George
Hessequa
Knysna
Saldanha Bay
Stellenbosch
Theewaterskloof
West Coast District
Witzenberg
3 143 711 Senior manager and other employees 32 31 441 510 25 18 814 240 3 324 564 2 89 776
1 15 800 Other employees
2 5 324 493 3 5 340 293
5 263 518 5 263 518
2 37 725 2 37 725
1 1 698
26 626 936 2 273 566
2 7 895 1 1 055 1 6 840
1 40 618 Other employees
1 40 618
3 701 349 3 701 349
1 40 749
1 10 400 1 10 400
Total 2011-12 90 38 892 841 5 200 129 85 38 692 712 43 25 302 108 13 707 881 3 130 394
Total 2010-11 129 87 863 000 21 1 836 000 108 86 027 000 91 80 839 000 27 3 652 000 10 1 004 576
Improvement
Regression
Eleven municipalities had repeat findings, while five others had new findings related to prohibited awards to employees and councillors or state officials. A
total of R38,9 million (90 instances) [2010-11: R87,9 million (129 instances)] was spent on these prohibited awards, which represents a 56% reduction in rand
terms, compared to the previous year. As indicated in the summary above, there has been a good improvement in the number and value of instances of
awards to persons in the service of the state. This indicates that actions implemented by all stakeholders to reduce the extent of non-compliance with SCM
regulations are starting to bear fruit, however, it should be noted that there is still more that needs to be done and that if risks are not addressed adequately
there is a possibility of regression.
44

It was also noted that the non-compliance related to suppliers either not declaring or not being required to submit a declaration form was not due to a lack of
internal controls, but rather suppliers not being honest in their declarations. Special attention is required by municipalities with the support of oversight and
monitoring initiatives to address control deficiencies in the areas of contract/awards to officials of the state institutions or suppliers who did not declare or
submit a declaration of interest.
Awards to close family members of employees and councillors
Awards to persons or entities owned/managed by persons who are close family members of persons in the service of the state, whether at the auditee or at
any other state institution, are not prohibited. However, such awards of more than R2 000 must be disclosed in the financial statements of the auditee for the
sake of transparency and as required by SCM regulation 45. A close family member is defined as a spouse, child or parent of a person in the service of the
state.
The audit included the identification of awards to close family members. Further testing was performed to determine whether the financial statement disclosure
was made and whether the legislated requirements with regard to declarations of interest were adhered to.
The following table shows the audit findings raised at auditees where awards to close family members of officials of the auditee were identified, with an
indication of the positions of the officials involved. The percentage is based on the number of auditees reported on. Where such awards were also identified in
the prior year, the name of the auditee is highlighted in red.
45

Table 13: Awards to close family members
Auditee
Awards made to close family members of
persons in service of the auditee
No
disclosure in
financial
statements
Official did
not declare
interest
Supplier did
not submit
declaration
of interest
Supplier did
not declare
interest
Number of
Number of
Amount Positions
instances
instances
Beaufort West 2 10 094 Other employees 2
Number of
instances
Bitou 5 205 970 Other employees 5
Breede Valley 9 170 195 Other employees
Number of
instances
Number of
instances
City of Cape Town 47 34 923 000 Other employees 32 37
Eden District 2 205 605 Other employees 2
Hessequa 3 508 849 Other employees
Knysna 4 44 748 Other employees 4 4
Langeberg 1 65 648 Other employees 1
Matzikama Local 57 430 410 Other employees
Theewaterskloof 2 600 387 Other employees 2
Total 2011-12 132 37 164 906 4 43 42 0
Total 2010-11 27 3 488 000 0 3 2 0
Improvement
Regression
Uncompetitive or unfair procurement processes
The principles of contracting for goods and services in a manner that is fair, equitable, transparent, competitive and cost effective come from our Constitution.
Legislation, most notably the MFMA and SCM regulations, prescribes the processes and rules to be followed by auditees in order to consistently and correctly
apply the constitutional principles and to safeguard the process against abuse. The preferential procurement framework further gives effect to the
constitutional principle of affording preference to the previously disadvantaged in the allocation of work by the public sector.
Our audits also focus on whether procurement processes followed were fair and competitive in that they provided all suppliers equal opportunity to compete
for public sector contracts and that the process does not favour some suppliers above others.
It is important that the prescribed processes be followed to ensure that the selected supplier meets the requirements and has the capacity and ability to deliver
the goods and services, and that those goods and services are procured at competitive and economical prices.
46

The procurement processes of 1 077 contracts (R2,4 billion) and 1 699 quotations (R85,4 million) were tested. Not all awards made by auditees were
tested, only those selected based on risk and a statistical sampling method. The most prevalent findings on non-compliance with SCM legislation that
resulted in uncompetitive or unfair procurement processes are summarised in the following table.
Table 14: Summarised findings on uncompetitive or unfair procurement processes
Three written quotations not invited – no deviation approved: five
auditees (23%)
Summarised findings on uncompetitive or unfair procurement processes
Three written quotations not invited – deviation not
reasonable/justified: three auditees (12%)
0%
40%
60%
0%
0%
100%
A price quotation process was prescribed for procurement of goods and
services valued at between R10 000 and R200 000. Three price
quotations were not, in all instances, obtained from prospective
providers and the deviations were not approved by a properly delegated
official as required.
Three price quotations were not, in all instances, obtained from
prospective providers and although the deviations were approved by a
properly delegated official as required, it was found not to be
reasonable or justified.
No declaration of interest by supplier: eight auditees (31%) Preference points system not used: three auditees (12%)
62%
33%
25%
67%
13%
0%
47

Suppliers were required to submit a declaration of interest as required
for all awards where a written quotation was required (MBD4). This was
to ensure that awards were only made to those suppliers who were not
persons in the service of the state. In all instances, a declaration of
interest form was not submitted by the supplier.
Quotations not obtained from listed prospective suppliers/
suppliers meeting listing requirements: three auditees (12%)
Summarised findings on uncompetitive or unfair procurement processes
The preference point system was not applied in all procurement of
goods and services above R30 000, as required by the Preferential
Procurement Policy Framework Act.
Other findings: 11 auditees (65%)
0%
33%
67%
9%
18%
73%
Awards were made to suppliers that were not listed on the supplier
database or to suppliers that did not meet the listing requirements.
Other findings included bids advertised for a shorter period,
construction projects not registered on the CIDB website, performance
of contractors not monitored on a monthly basis.
Inadequate contract management
Shortcomings in the manner in which contracts were managed resulted in delays, wastage and fruitless and wasteful expenditure, which in turn,
impacted directly on service delivery. Inadequate contract management remained at the same level. The most prevalent findings on inadequate contract
management are summarised in the table below.
Table 15: Inadequate contract management
Payments made in excess of approved contract price (with further approved extensions)
Key findings Auditees Percentage
1 4%
Performance of contractors not monitored on a monthly basis
Inadequate contract performance measures and monitoring
3 12%
2 8%
48

Inadequate supply chain management controls
Internal control deficiencies in the SCM environment were the highest at nine (35%) auditees, a further deterioration of two (8%) auditees compared to prior
year. The most prevalent deficiencies identified during the audit on fundamental SCM controls are summarised in the table below.
Table 16: Inadequate internal controls
Inadequate controls to ensure that interest is declared
Register of bids received on time not published on website
Key findings Auditees Percentage
3 12%
2 8%
SCM policy/procedures in conflict with applicable legislation/did not include all requirements
No/inadequate record keeping
No plan for addressing audit findings on SCM/adherence to the plan was not monitored regularly
Other control deficiencies included performance of the SCM unit was not regularly analysed; inadequate
controls for vendor acceptance; and no controls were in place to monitor the performance of contractors
1 4%
1 4%
1 4%
4 15%
Conclusion
As indicated in the summary above there has been a good improvement in the area of SCM. This indicates that actions implemented by all stakeholders to
reduce the extent of non-compliance to SCM regulations is starting to bear fruit, however, it should be noted that there is still more that needs to be done and
that if risks are not addressed adequately there is a possibility of regression.
This improvement can be attributed to the fact that a greater awareness has been created among the auditees regarding procurement. Auditees have taken
the message and implemented policies and procedures as well as detailed compliance checklists where these were lacking and the internal audit units have
been active in looking into the risks of non-compliance in the area of procurement. The next step for auditees is to maintain the momentum of these actions to
ensure that this result is sustainable.
With regard to those auditees that have stagnated and not improved, it was identified that due to the timing of the implementation of actions, although the
number of instances of non-compliance has reduced significantly, the actions implemented were not timeous enough to prevent material non-compliance. The
leadership needs to be more active in ensuring that credible action plans are designed and implemented timeously, and monitored to ensure that the actions
49

eap the required benefits. More emphasis needs to be placed on employee and supplier awareness to ensure that the conflict of interest declarations are
completed correctly and submitted by employees and suppliers as this seems to be a significant risk area.
50

2.4.4 Unauthorised, irregular as well as fruitless and wasteful expenditure
Number of auditees that incurred unauthorised, irregular,
and/or fruitless and wasteful expenditure
Nature of compliance findings on unauthorised, irregular as well as fruitless
and wasteful expenditure (UIFW)
Any two of
unauthorised,
irregular or
fruitless and
wasteful
expenditure
15 (57%)
Unauthorised expenditure not prevented
Irregular expenditure not prevented
8 31%
9 35%
10 38%
18
69%
Irregular
expenditure only
3 (12%)
Unauthorised
expenditure only
2 (8%)
All three of
unauthorised,
irregular or
fruitless and
wasteful
expenditure
4 (15%)
No unauthorised,
irregular or
fruitless and
wasteful
expenditure
2 (8%)
Fruitless and wasteful expenditure not
prevented
Disciplinary steps not taken against officials
who made or permitted UIFW
0%
5
1 4%
0%
19%
2012 2011
Cape Town
Metropolitan
District
municipalities
Local
municipalities
Total
100% 80%
20%
95%
92%
5%
8%
Auditees that did not incur UIFW
Auditees that incurred UIFW
51

The MFMA requires accounting officers/authorities to take effective and appropriate steps to ensure that unauthorised, irregular as well as fruitless and
wasteful expenditure (UIFW) is prevented. Although there is an expectation that no such expenditure should be incurred, it is not always possible for an
accounting officer to prevent the occurrence thereof even if all reasonable steps had been taken. In instances where it does occur, the MFMA makes it
compulsory for auditees to disclose such expenditure in their annual financial statements. The MFMA further requires that all instances of unauthorised,
irregular as well as fruitless and wasteful expenditure should be investigated. If the investigation determines that an official is liable for the expense,
disciplinary steps should be taken and the expenditure should be recovered.
The extent of unauthorised, irregular as well as fruitless and wasteful expenditure and the pervasiveness of the related non-compliance with legislation
applicable to unauthorised, irregular as well as fruitless and wasteful expenditure as depicted earlier indicate a breakdown in auditees’ internal control
environment.
Table 17: Key trends unauthorised, irregular as well as fruitless and wasteful expenditure
Indicator
92% incurred
Noncompliance
reduced
Fruitless and
wasteful
Key findings
Ninety-two per cent of auditees, compared to 85% in prior year, incurred unauthorised and/or irregular and/or fruitless and wasteful
expenditure.
Although non-compliance reporting decreased from 2011 to 2012 the number of auditees incurring unauthorised and irregular
expenditure remained high.
Although the rand value and instances of fruitless and wasteful expenditure increased, no instances of material non-compliance were
reported in the audit reports for fruitless and wasteful expenditure not prevented.
Good Concerned Poor
Section 3.3.5 provides further detail on the lack of consequences for transgressions, which includes incurring unauthorised, irregular as well as fruitless
and wasteful expenditure.
52

Figure 9: Nature of and overall trends in unauthorised expenditure
Amount
Number of auditees (2011-12: 69%)
R1 029,4 million
R 23,6 million
18
2
14
16
3
5
R1 005,8
million
16
R276,7 million
R 24,5 million
R252,2 million
R259,5 million
R 52,5 million
R207 million
11 11
2011-12 2010-11 2009-10
Unauthorised expenditure (UE)
2011-12 2010-11 2009-10
Unauthorised expenditure (UE)
Identified by auditees
Identified during audit
All of UE identified by auditees
All or part of UE identified during audit
Cape Town
Metropolitan
District
municipalities
Local
municipalities
Total
100%
60%
40% 75%
25%
69%
31%
Auditees that did not incur UE
Auditees that incurred UE
53

The previous figure reflects the three-year trend in unauthorised expenditure, the extent to which it was identified during the audit (and not by the auditees’
internal control systems) and the type of auditee where it occurred.
The unauthorised expenditure incurred was as a result of overspending of votes/main divisions within votes (97%) and expenditure not in accordance
with the purpose or unrelated to functional area (3%). Two municipalities (Mossel Bay and Knysna) accounted for R704 million (68,3%) of the
unauthorised expenditure due to non-cash expenditure not budgeted for related to the impairment of property, plant and equipment (PPE) (mostly land
and to a certain extent buildings).
Unauthorised expenditure invariably means that money intended for a certain programme was used to fund other programmes, which in turn affected
service delivery in accordance with the performance objectives set for the year.
Table 18: Key outcomes and trends in unauthorised expenditure
Indicator
Auditees
identified
instances
Unauthorised
increased
Individual
unauthorised
greater than
R10 million
Non-cash
expenditure
Key findings
Auditees identified and disclosed 98% of all unauthorised expenditure identified.
The number of auditees incurring unauthorised, as well as the rand value of unauthorised increased from 2011 to 2012.
Eleven municipalities incurred individual unauthorised expenditure above R10 million due to improper budgeting, incorrect allocations
between capital and operating budgets and inadequate monthly budgetary controls.
Two municipalities (Mossel Bay and Knysna) contributed to R704 million (68%) of the unauthorised expenditure incurred in the
province due to non-cash expenditure not budgeted for related to the impairment of property, plant and equipment (mostly land and, to
a limited extent, buildings).
Good Concerned Poor
54

Figure 10: Nature of and overall trends in irregular expenditure
Amount
Number of auditees (2011-12: 77%)
R529,6 million
20
19
23
R242,8 million
R 439.7 million
19
14
18
R66,6 million
R216,9 million
R37,2 million
R 89.9 million
R29,4 million R25,9 million
2011-12 2010-11 2009-10
Irregular expenditure (IE)
5 5
1
2011-12 2010-11 2009-10
Irregular expenditure (IE)
Identified by auditees
Identified during audit
All of IE identified by auditees
All or part of IE identified during audit
Cape Town
Metropolitan
District
municipalities
Local
municipalities
Total
100% 80% 20% 75% 25%
77%
23%
Auditees that did not incur IE
Auditees that incurred IE
55

The previous figure reflects the three-year trend in irregular expenditure, the extent to which it was identified during the audit (and not by the auditees’ internal
control systems) and the type of auditee where it occurred.
Irregular expenditure does not necessarily mean that money had been wasted or that fraud had been perpetrated. However, it is a measure of an
auditee’s ability to comply with laws and regulations relating to expenditure and procurement management. The nature of and current year movement in
irregular expenditure are reflected in the table below.
Table 19: Nature of and current year movement in irregular expenditure
Nature
Number of
auditees
Movement in
number of
auditees from
2010-11
Amount
Movement in
amount from
2010-11
Related to SCM 20 R 66,3 million
5%
72%
Related to compensation of
employees
2 0% R 0,1 million
89%
Other non-compliance 1 R 0,2 million
50%
82%
Improvement Unchanged Regression
56

Table 20: Key outcomes and trends in irregular expenditure
Indicator
Trend of
reduction
Number of
auditees
incurring
Irregular
identified by
auditors
Key findings
There is a notable trend of a reduction in the rand value of irregular expenditure incurred over the three years (2010 to 2012).
Although the rand value of irregular expenditure decreased significantly, the number of auditees incurring irregular expenditure
increased marginally.
A significant portion (56%) of the irregular expenditure incurred by auditees was identified during the audit, indicating that the auditees’
internal controls failed to detect these deviations.
Good Concerned Poor
57

Figure 11: Nature of and overall trends in fruitless and wasteful expenditure
Amount
Number of auditees (2011-12: 35%)
R7,8 million
9
1
9
R 2,5 million
R6,3 million
R 0,6 million
2
7
3
8
R5,3 million
R5,7 million
R3 million
R 0,9 million
5
6
R2,1 million
2011-12 2010-11 2009-10
Fruitless and wasteful expenditure (FWE)
2011-12 2010-11 2009-10
Fruitless and wasteful expenditure (FWE)
Identified by auditees
Identified during audit
All of FWE identified by auditees
All or part of FWE identified during audit
Cape Town
Metropolitan
District
municipalities
Local
municipalities
Total
100% 100% 45% 55% 35% 65%
Auditees that did not incur FWE
Auditees that incurred FWE
58

The previous figure reflects the three-year trend in fruitless and wasteful expenditure, the extent to which it was identified during the audit (and not by the
auditees’ internal control systems) and the type of auditee where it occurred. The table below shows the overall movement in the number of auditees and
the movement in the amount of fruitless and wasteful expenditure incurred by these auditees.
The actual fruitless and wasteful expenditure related mostly to interest incurred on late payments, payment for software not used and an overpayment on
a contract.
Table 21: Nature of and current year movement in fruitless and wasteful expenditure
Nature
Incurred to prevent
irregular/loss/further fruitless and
wasteful expenditure
Number of
auditees
Movement in
number of
auditees from
2010-11
Amount
Movement in
amount from
2010-11
100% 100%
1 R 0,3 million
Actual fruitless and wasteful
expenditure
14%
8 R 7,5 million
20%
Improvement Unchanged Regression
Table 22: Key outcomes and trends in fruitless and wasteful expenditure
Indicator
Rand value
increased
Two auditees
account for
majority
Key findings
Both the rand value and the number of municipalities incurring fruitless and wasteful increased from 2011 to 2012.
Two municipalities accounted for R7,1 million (91%) of fruitless and wasteful expenditure incurred in the province. It related to software
purchases not used (Bitou R4,4 million) and an overpayment on a contract (Saldanha Bay R2,5 million). Both auditees also incurred
interest on overdue accounts.
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Indicator
Auditors
identify a
large portion
Key findings
A large portion (32%) of the fruitless and wasteful expenditure incurred by auditees was identified during the audit, indicating that the
auditees’ internal controls failed to detect these deviations.
Good Concerned Poor
Conclusion on unauthorised, irregular as well as fruitless and wasteful expenditure
Twenty-four (92%) auditees incurred unauthorised, and/or irregular and/or fruitless and wasteful expenditure. Unauthorised expenditure has increased by
272% to R1 029 million compared to the prior year. However, R704 million of this is due to non-cash expenditure that was not budgeted for. The audits further
revealed that the accounting officers of 12 (46%) auditees did not ensure that reasonable steps had been taken to prevent this type of expenditure. This was
reported in the auditor’s reports as material non-compliance.
The extent of this expenditure and non-compliance by accounting officers indicated an environment where unauthorised, irregular as well as fruitless and
wasteful expenditure was still incurred by the majority (92%; 2010-11: 85) of auditees. It is encouraging to note that although the number of auditees
increased there has been a significant reduction in material non-compliance due to a reduction in the rand value of irregular expenditure incurred, which bodes
well for sustained improvement in this area. Reasonable steps were not taken to prevent such expenditure, while the occurrence of irregular expenditure in
particular, was also not detected by auditees but was most often identified through the AGSA’s audit process.
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SECTION 3: ROOT CAUSES OF AUDIT OUTCOMES
This section details the root causes of audit outcomes and recommendations to address these root causes. Section 3.1 provides a summary of the root
causes with further detail on such root causes and areas of risk that require attention; section 3.2 details the significant deficiencies in auditees’ systems of
internal control, human resource management is discussed in section 3.3; financial reporting assistance provided by consultants is detailed in section 3.3.3;
section 3.4 discusses information technology management; and section 3.5 deals with the effectiveness of audit committees and internal audit units.
3.1 Summary of root causes of poor audit outcomes
The AGSA’s audit process includes an assessment of the root causes of audit findings based on the identification of the internal control which failed to
prevent or detect the misstatement or non-compliance.
The tables that follow summarise the most common root causes of the audit outcomes in local government, provide recommendations to address the root
causes and identify the role players responsible for addressing such root causes. The majority of these root causes and recommendations were also reported
in the 2010-11 management, audit and general reports. The AGSA’s view on the reasons for not addressing the prior year root causes is also provided.
Legend: F = Financial reporting; P = Performance reporting [service delivery reporting]; C = Compliance with laws and regulations
Table 23: Prior year root causes not addressed and recommendations not implemented
Root cause
number 1:
Slow response by political leadership in addressing the
root causes
Detail on root cause
Identified at 19 (73%) of auditees
Audit outcomes affected
F P C
X X X
There were municipalities that still failed to address findings previously reported as they implemented our recommendations too late for them to have an impact on the next
audit outcome, which led to them to still having findings on compliance with laws and regulations and PDOs.
Fourteen auditees remained with issues partially addressed from the prior year, one auditee (Mossel Bay) addressed prior year issues fully and it (implementing our
recommendations too late) was identified as a new root cause for the 2012 year for five auditees.
Role players that should address the root cause
CFOs, municipal managers, mayors, councils, MECs for finance and local government and the premier.
Reason(s) why prior year root cause was not addressed
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Root cause
number 1:
Slow response by political leadership in addressing the
root causes
Identified at 19 (73%) of auditees
Audit outcomes affected
F P C
X X X
Many councils, executive mayors and municipal managers at auditees that failed to make progress and those whose outcome had regressed, did not consistently focus on
the weaknesses identified in key controls, thus leading to corrective actions not being taken in a timely manner to positively impact the control environment. Lapses in
effective oversight included the following:
• Action plans were developed too late in the financial year to resolve matters by year-end.
• Furthermore, in most instances the action plans also did not address the root causes of audit findings and therefore did not prevent repeat findings in the area of
financial reporting and compliance with laws and regulations. This was an indication that the leadership did not assess the adequacy of action plans and monitor
progress in their implementation to improve audit outcomes, despite the fact that the AGSA pointed out these shortcomings during key control visits.
• There was ineffective monitoring to ensure that the responsibilities assigned to address certain findings were carried out consistently and effectively.
• Effective internal controls were not designed and implemented in a timely and sustainable manner.
• Some municipalities did not see the value in the preparation of regular financial statements, supported by the daily disciplines of regular processing and monthly
reconciliation of accounts.
Prior year AGSA recommendations not yet implemented
• The political and administrative leadership should focus on the areas of non-compliance through overseeing the development and implementation of appropriate action
plans and monitoring of compliance through the use of compliance checklists.
• The political and administrative leadership should oversee the development and implementation of adequate action plans to effectively address the risks relating to
performance reporting, which should include regular preparation of performance reports that are validated for accuracy.
• The preparation of regular financial statements must become a standard feature of monthly reporting processes, supported by the implementation of controls to ensure
daily processing of transactions and monthly reconciliation of accounts.
Additional recommendations made at this time
• The political and administrative leadership of municipalities should insist in getting regular financial statements and performance reports whose credibility should be
confirmed by the audit committee with the assistance of internal audit, as well as the provincial treasury.
• Municipalities should develop credible action plans to address internal control deficiencies as soon as the deficiencies have been identified.
• The relevant oversight functions vested in mayors, accounting officers, senior management, internal audit units and audit committees should be better exercised to
ensure the effective implementation of the action plans.
• The monitoring and coordinating institutions such as the provincial treasury and local government should enhance the support and guidance they provide to
municipalities to develop and implement action plans in a timely manner.
Root cause
number 2:
Lack of consequences for poor performance and
transgressions
62
Identified at 10 (38%) of auditees
Audit outcomes affected
F P C

Detail on root cause
X X X
• Inadequate performance management of accounting officers and employees is still at the root of many of the failures of local government and was identified at 10 (38%)
municipalities.
• Seven auditees remained with issues partially addressed from the prior year, five auditees addressed prior year issues fully and it (inadequate performance
management) was identified as a new root cause for the 2012 year for three auditees.
The three municipalities that fully addressed the issue imbedded a culture of consequence management, including actions such as including clean audit outcomes as part of
the performance contracts of managers. Responsibility was assigned to specific officials to aid in holding other officials responsible and it is evident that steps were taken
against officials when transgressions occurred.
Role players that should address the root cause
CFOs, municipal managers, mayors and municipal councils
Reason(s) why prior year root cause was not addressed
The controls and performance objectives of the municipalities did not filter through to the performance contracts of municipal officials in order to direct their daily operations.
As such, ineffective performance management led to officials, who performed poorly, not being dealt with decisively at some municipalities.
Prior year AGSA recommendations not yet implemented
Prior year AGSA recommendations not yet implemented include the following:
• In order to improve the performance and productivity of municipal officials, the leadership should set the tone by implementing sound performance management
processes, evaluating and monitoring performance, and consistently demonstrating that poor performance has consequences.
• The disciplinary regulations for senior managers, effective from April 2011, provide mechanisms and procedures for managing misconduct of municipal managers and
senior managers. The implementation of these regulations will further provide an opportunity for the councils and municipal managers to demonstrate their commitment
to accountability.
Additional recommendations made at this time
• A concerted effort is required by mayors, municipal councils and municipal management to ensure that the disciplinary regulations for senior managers are complied
with in instances were transgressions have been identified.
• The municipal leadership needs to enhance its oversight responsibilities to ensure that action is taken against transgressors and that action plans are implemented and
monitored.
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Root cause
number 3:
Key positions vacant or key officials lacking appropriate
competencies
Detail on root cause
Identified at 13 (50%) of auditees
Audit outcomes affected
F P C
X X X
The complexities in local government – the challenges experienced and the expectations of the public – demand that key personnel at municipalities have the skills,
experience and capacity to assume and fulfil their responsibilities and exercise their functions and powers. The reforms in financial and performance management have also
resulted in a higher level of competency requirements than in the past for accounting officers, CFOs, senior managers, SCM officials and other municipal officials.
• The audit outcomes, failures in service delivery and the high demand for consultants, as highlighted in this report, indicated an environment where the persons
appointed in these posts did not have the competencies required. This has been identified as a weakness at 13 (50%) of the municipalities, a regression from the 10
(38%) municipalities that had this concern in 2010-11.
• Persons were appointed who did not have the requisite competencies, while current employees did not keep up with the changing local government environment
through ongoing training and development.
• Vacancies in key positions and instability in leadership at some municipalities affected the pace of sustainable improvements in audit outcomes.
Seven auditees remained with these issues from the prior year, three addressed prior year issues and at six auditees the root causes mentioned above were identified as
new root causes for the 2011-12 financial year.
Role players that should address the root cause
CFOs, municipal managers, mayors, municipal councils, provincial treasury and local government
Refer to human resource management sections 3.3.1 and 3.3.2 for more detail.
Reason(s) why prior year root cause was not addressed
Prior year AGSA recommendations not yet implemented
• Although all vacancies should be filled as a matter of urgency, the ideal is that key positions must be filled with people who have the requisite competencies. There is an
option for secondments, consultants and national and provincial support in these cases.
• There have been many initiatives at national and provincial levels to address the human resource weaknesses in local government, but there has been limited success.
A coordinated and focused approach is needed to ensure that the many programmes, commitments and action plans from different stakeholders succeed.
• The implementation of the latest legislative reforms will also require a new level of collaboration, especially by the treasury and the departments of local government at
national and provincial levels. Without these partnerships and commitment by the political and administrative leaders of the municipalities, the situation in the Western
Cape will not improve.
Additional recommendations made at this time
• Mayors and municipal councils should perform an assessment of the minimum competencies of all employees at their municipalities.
• Employees should be placed in positions for which they are qualified and have the skills and competencies to perform. The resultant vacancies should be filled with
officials complying with the minimum required competencies.
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Root cause
number 3:
Key positions vacant or key officials lacking appropriate
competencies
Identified at 13 (50%) of auditees
Audit outcomes affected
F P C
X X X
• The provincial treasury and local government should assist with training and upskilling of existing employees at municipalities that cannot attract the required skills.
• Municipalities should offer bursaries to candidates that are studying towards careers to create a pipeline, which will aid the skills shortages that municipalities face. This
will ensure that skills can be attracted to fill positions instead of re-advertising posts and the creation of a long-term plan to address vacancies at municipalities.
• Municipalities should consider implementing appropriate incentives to attract candidates with the requisite competencies and experience to municipalities that are
located in remote areas.
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3.2 Significant deficiencies in auditees’ systems of internal control
*
Objectives impacted on by internal control driver
53%
47%
35% 33%
53%
43%
Internal control driver
Financial
management
and reporting
Service delivery Compliance with laws
planning and reporting and regulations
Leadership
53% 22% 25% 53% 22% 25% 51% 27% 22%
23%
26%
34%
30%
29%
27%
Financial and
performance
management
25% 40% 35% 36% 32% 32% 37% 36% 27%
24% 27%
31%
2011-12 2010-11 2011-12 2010-11 2011-12 2010-11
Leadership
37%
Financial and performance
management
18%
30%
Governance
Governance
Good
Improvement
56% 29% 15% 51% 25% 24% 51% 30% 19%
Causing concern
Intervention
required
Regression
A key responsibility of accounting officers/authorities and other officials is to implement and maintain effective and efficient systems of internal control. As part
of the audits the auditee’s system of internal control is assessed to determine its effectiveness in ensuring reliable financial and performance reporting and
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compliance with laws and regulations, which, in turn, will result in clean audit outcomes. For purposes of focusing corrective action, the principles of the
different components of internal control, termed drivers of internal control, have been categorised under leadership, finance and performance management
and governance.
The previous figure and the table below provide the overall assessment of these drivers at the time of the audit, based on significant deficiencies identified in
internal control, which resulted in material misstatements (corrected and uncorrected) in financial statements and performance reports as well as findings on
compliance with laws and regulations. The following broad areas are highlighted:
Table 24: Key trends drivers of internal control
Indicator
Significant
internal control
deficiencies are
being
addressed
Municipalities
requiring
intervention
Some controls
have not
improved
Key findings
As can be seen from the above figure, municipalities have made progress in addressing significant deficiencies in leadership, financial
and performance management and governance components. These municipalities should continue to enhance their oversight and
monitoring functions to ensure that internal control deficiencies are addressed in a sustainable manner.
The overall improvement of the combined controls relating to leadership, financial and performance management and governance has
had a positive impact on all three facets of the audit outcomes, namely (i) financial statements, (ii) reporting against PDOs (service
delivery reporting); and (iii) compliance with laws and regulations.
This resulted in significant decreases in the number of findings on PDOs and compliance with laws and regulations, while qualifications
have also decreased. The full impact of the improved control environment, if sustained, will be evident in further improvements in audit
outcomes in subsequent financial years.
The overall decrease in the municipalities’ key drivers of internal controls requiring intervention is encouraging; however, the stagnation in
the number of municipalities requiring intervention in controls related to leadership is concerning. This can be seen in the recurring
findings on compliance with laws and regulations and PDOs, which continue to prevent municipalities from obtaining clean audit
outcomes. The municipal management, internal audit units, audit committees and oversight functions within the municipalities should
better exercise their oversight to ensure that action plans address internal control deficiencies and improve audit outcomes.
The number of municipalities with qualified opinions decreased. However, there has been a marked increase in the number of
municipalities that needed to make material adjustments to their financial statement to avoid a qualification of their financial statements.
The majority of the municipalities have not yet paid careful attention to our advice to prepare regular financial statements during the
financial year, which would reduce the material misstatements that are identified during the audit process. Furthermore, at some
municipalities, effective internal controls to prevent, detect and correct non-compliance with laws and regulations and errors in financial
and performance reports were lacking. Checks and balances for all key processes, monthly reporting and validation processes to ensure
the credibility of all management information are basic controls, which skilled professionals employed by the municipalities should be able
to implement.
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Good Concerned Poor
The status of the internal control elements as at June 2012, underlying leadership, financial and performance management and governance and movement in
the implementation thereof are presented in the following table. Annexure 3 provides the status of key controls per auditee.
Table 25: The status of and movement in the internal control elements, underlying leadership and financial and performance
management
Driver no. 1: Leadership Movement Assessment of driver
Provide effective leadership based on a culture of honesty,
ethical business practices and good governance,
protecting and enhancing the interests of the entity.
2011-12
2010-11
79%
98%
12%
1% 1%
9%
The overall improvement at some municipalities and the stagnation in the audit outcomes of other municipalities are directly associated with committed and ethical leadership
at municipalities, setting the tone at the top. The leadership of an organisation sets the tone from the top regarding the importance of internal controls and expected standards
of conduct. There is an intention by the political leadership of municipalities to obtain clean audit outcomes; however, the execution should match the intention.
The leadership of municipalities should focus on monitoring the performance of key officials regarding the maintenance of adequate systems of internal control that ensure
credible monthly financial reporting, reliable reporting against PDOs and compliance with laws and regulations.
Execution will become a sustainable reality when the leadership of municipalities holds officials accountable and requires that actions be taken against officials for
transgressions or poor performance.
Exercise oversight responsibility regarding financial and
performance reporting and compliance with laws and
regulations and related internal controls.
2011-12
2010-11
32%
44%
28%
24%
40%
32%
Our quarterly key control visits were introduced to assist municipalities to track, on a quarterly basis, whether their drivers of internal controls have improved, remained
stagnant or regressed.
The municipalities, which have responded to our key control messages, have shown improvements in their drivers of internal controls. The leadership of these municipalities
took this initiative seriously by making time to meet with us at least three times. This contributed to the positive impact on key internal controls on areas of financial and
performance information reporting and compliance with laws and regulations. The improvements can be observed in the decrease in the number of findings on performance
information reporting and findings on compliance with laws and regulations. Further improvements can be noted in the overall key control status of municipalities with
substantial improvement on governance.
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Driver no. 1: Leadership Movement Assessment of driver
However, the response was at a slow pace as the same municipalities still had not addressed all their significant internal controls deficiencies. Many councils, executive
mayors and municipal managers at auditees which failed to make progress and those whose outcome had regressed, did not consistently focus on the weaknesses identified
in key controls, thus leading to corrective actions not being taken in a timely manner to positively impact the control environment.
Drakenstein and Hessequa did not take these interactions seriously enough in the past as they did not make time to meet with the AGSA at least once each quarter (meeting
once and twice, respectively). Stellenbosch failed to meet with us for key control meetings, because of leadership instability at municipal manager level – there were four
different persons that acted as municipal managers during the year under review.
Implement effective human resource management to
ensure that adequate and sufficiently skilled resources are
in place and that performance is monitored.
2011-12
2010-11
50%
55%
33%
23%
22%
17%
An assessment of findings arising from the audit of human resource management is presented in section 3.3.
Establish and communicate policies and procedures to
enable and support an understanding and execution of
internal control objectives, processes and responsibilities.
2011-12
2010-11
54%
59%
27%
27%
19%
14%
Policies and procedures are fundamental to an internal control environment that supports good governance and produces clean administration. The improvement recorded in
the area of adequate policies and procedures is encouraging. If compliance with these policies and procedures is monitored in a timely manner to allow for corrective action
when deficiencies are identified, it would result in reliability of performance information and consistent compliance with laws and regulations.
Develop and monitor the implementation of action plans to
address internal control deficiencies.
2011-12
2010-11
36%
42%
31%
30%
33%
28%
Some of the municipalities with audit outcomes that did not improve from financially unqualified with findings have shown little progress in addressing prior year findings,
especially in the area of financial reporting and compliance with laws and regulations. Specific plans are required to address internal control deficiencies to improve the audit
outcomes. Matters requiring attention include the following:
• Their action plans were developed too late in the financial year to resolve matters by year-end.
• The action plans also did not address the root causes of audit findings and therefore did not prevent repeat findings in the area of financial reporting and compliance with
laws and regulations. This was an indication that the leadership did not assess the adequacy of action plans and monitor progress in their implementation to improve audit
outcomes.
• Action plans should be set in a timely manner and address root causes of audit findings, in addition to other key risks facing the municipalities, to prevent repeat findings.
• Ineffective monitoring to ensure that responsibilities are assigned and carried out effectively and consistently.
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Driver no. 1: Leadership Movement Assessment of driver
Develop and monitor the implementation of action plans to
address internal control deficiencies in the IT environment.
Establish an IT governance framework that supports and
enables the business, delivers value and improves
performance.
2011-12
2010-11
13%
28%
46%
25%
47%
41%
An assessment information technology controls is presented in section 3.4.
Driver no. 2: Financial and performance
management
Movement
Assessment of driver
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.
Proper record keeping is an essential step towards achieving clean audit outcomes, as it ensures that the information reported can be substantiated and verified. An adequate
system of record keeping requires that the senior management establish adequately developed and communicated policies to ensure that staff align their actions to the
entity’s objectives. A key objective of maintaining a formal and reliable system of record keeping is to have documentation readily available when requested.
Adequate record keeping has regressed in respect of financial information while it has improved for performance information. Inadequate record keeping resulted in a
qualification for Bergriver as they were unable to provide information for audit purposes to verify the opening balance of inventory. Adequate documentation was also not
present at many other municipalities included in this analysis to support accurate reporting in the financial statements, resulting in material misstatements. The root causes
included the following:
2011-12
2010-11
• The leadership’s lack of willingness to implement those commitments that were specifically made to address the recurring instances of missing and incomplete supporting
information.
• A lack of formal review of the financial statements against supporting documentation before submission thereof for auditing.
45%
53%
33%
21%
26%
22%
Implement controls over daily and monthly processing and
reconciling of transactions.
2011-12
2010-11
41%
45%
24%
28%
35%
27%
Auditees that improved or sustained their audit outcomes were found to effectively monitor daily and monthly processing and reconciling of transactions. Auditees that
improved on reconciliation processes and reconstruction of fixed asset register, in particular, were able to resolve audit qualifications. Three municipalities moved from
qualified opinions to financial unqualified with finding on performance reporting and compliance with laws and regulations. However, some municipalities still did not confirm
that legislative requirements and policies have been complied with prior to initiating transactions and remain with findings on SCM.
These basic financial controls should be actively monitored by management in order to achieve improved audit outcomes.
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Driver no. 1: Leadership Movement Assessment of driver
Prepare regular, accurate and complete financial and
performance reports that are supported and evidenced by
reliable information.
2011-12
2010-11
18%
22%
42%
36%
40%
42%
Only when the in-year preparation and independent review of financial statements and performance information become an established practice, will the quality of financial
statements submitted for auditing significantly improve and findings resulting from material misstatements in financial statements and performance reports be eliminated.
Although the number of auditees that obtained financially unqualified audit reports increased, the quality of the financial statements submitted for auditing was still not
adequate, as evidenced by the increase in the material misstatements identified and corrected during the audit.
Root causes included the following:
• Municipalities were still not heeding our call to prepare financial statement on a monthly or quarterly basis as the leadership did not require this of its officials. The
leadership still did not see the value in this practice, and as a result, various errors in the process of compilation were not detected, leading to material misstatements in
the financial statements.
• Line managers also did not accept responsibility to ensure that information is accurate, valid and complete.
• Furthermore, the validation process of the information submitted for compilation of the financial statements was not adequate as was evident from the misstatements
detected through the audit process.
• In a number of municipalities, it was also found that staff members did not fully understand the requirements of the financial reporting framework; as a result, there was an
over-reliance on consultants in achieving an unqualified audit opinion.
• Although there have been improvements in reporting of PDOs, the number of auditees still needing to improve in their performance reporting was due to the failure to
ensure the usefulness and reliability of the PDOs.
Review and monitor compliance with applicable laws and
regulations.
2011-12
2010-11
28%
26%
27%
37%
47%
35%
The analysis above includes compliance related to financial reporting, reporting on PDOs and other non-compliance. The improvement mainly relates to reporting on PDOs
and other non-compliance, in particular procurement and contract management and related irregular expenditure.
While the monitoring of laws and regulations in the area of procurement and contract management remained one of the biggest challenges in the province, municipalities
have significantly improved in this regard. The improvement was evident by the reduction in the extent of non-compliance findings reported at municipalities and by the
increase in the number of clean audit outcomes.
There were those municipalities that reported repeat findings of non-compliance with laws and regulations and there appeared to be no appreciable consequences for officials
who failed to comply or officials who failed to discharge their legislated duties.
The biggest challenge with the municipalities in the province was their failure to prepare financial statements that are free from material misstatements, which is contrary to
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the requirement of the MFMA.
Driver no. 1: Leadership Movement Assessment of driver
Design and implement formal controls over IT systems to
ensure the reliability of the systems and the availability,
accuracy and protection of information and to address
application systems susceptible to compromised data
integrity (Information systems).
2011-12
2010-11
14%
27%
44%
40%
42%
33%
An assessment of IT controls is presented in section 3.4.
Driver no. 3: Governance Movement Assessment of driver
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.
2011-12
2010-11
36%
56%
36%
29%
28%
15%
A risk assessment is conducted to establish what control activities (policies and procedures) are required to ensure achievement of the control objectives. The risk
assessment should cover all three facets of the audit outcomes, namely (i) financial statements, (ii) reporting against PDOs (service delivery reporting); and (iii) compliance
with laws and regulations.
This assessment then informs management and leadership of municipalities of the areas they should focus their attention on in order to drive their respective municipalities
towards clean audit outcomes. The strategy developed should then be appropriately implemented and monitored to ensure that it achieves the objective of clean audit
outcomes.
The analysis above shows significant improvement in the municipalities’ risk management strategies designed, implemented and monitored. This should result in
municipalities sustaining the progress made towards clean audits and also to further improvements in the future.
Ensure that an adequately resourced and functioning
internal audit unit is in place that identifies internal control
deficiencies and recommends corrective action effectively.
2011-12
2010-11
46%
53%
27%
26%
27%
21%
Section 3.6 provides an assessment of the effectiveness of internal audit units.
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Driver no. 1: Leadership Movement Assessment of driver
Ensure that the audit committee promotes accountability
and service delivery through evaluating and monitoring
responses to risks and provides oversight of the
effectiveness of the internal control environment, including
financial and performance reporting and compliance with
laws and regulations.
2011-12
2010-11
46%
50%
21%
27%
33%
23%
Section 3.6 provides an assessment of the effectiveness of audit committees.
Improvement Unchanged Regression
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3.3 Human resource management
Effective human resource (HR) management is a key driver of audit outcomes. In this context, HR management is deemed effective if adequate and
sufficiently skilled resources are in place and their performance and productivity are properly managed.
As detailed in section 3.1, the vacancies in key positions, competencies of key officials and the lack of consequences for poor performance and
transgressions were again identified as root causes of poor audit outcomes. These weaknesses are symptoms of ineffective HR management in local
government.
For the past two years the audits included an assessment of HR management, with specific focus on the following areas: ■ HR planning and organisation ■
Management of vacancies ■ Appointment processes ■ Performance management ■ Acting positions ■ Management of leave, overtime and suspensions.
Findings arising from the assessment of HR management were reported in the management reports of 38% of the auditees, while at 12% of auditees the
findings were material enough to warrant reporting in the auditor’s report.
The following figure shows the three weakest areas of HR management at auditees, which should be improved to positively affect audit outcomes. Further
detail on the findings is provided in sections 3.3.1 to 3.3.4.
Figure 12: Summary of human resource management weaknesses
Management of
vacancies and acting
positions
23%
Competencies of key
personnel
27%
Performance
management
4%
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The audits of SCM, financial misconduct and unauthorised, irregular as well as fruitless and wasteful expenditure included procedures to determine whether
there were consequences for transgressions by officials, as required by legislation. The findings arising from the audits are presented in section 3.3.5.
3.3.1 Management of vacancies and acting positions
The biggest challenge for local government was to attract and retain qualified, competent persons across all areas of administration.
Table 26: Key findings on the management of vacancies and acting positions
Indicator
Overall vacancy rate
Vacancy rate increased
from 2011
Vacancies at senior
management level
Senior management
vacancy rate increased
from 2011
Senior management
positions vacant for more
than 12 months
Vacant municipal
manager positions
Key findings
The average overall vacancy rate for 26 municipalities at year-end was 12%. The highest vacancy rate was at George
with 48% and the lowest at Witzenberg with 3%. George achieved a clean audit opinion in spite of the high vacancy rate
as these vacancies were at an operational level and not at management level. The was also assisted by consultants.
At 14 (54%) auditees, the overall vacancy rate has increased since 2010-11.
The average vacancy rate at senior management level for municipalities at year-end was 14%. The highest vacancy rate
was at Overberg District with 45% and the lowest at Overstrand with 2%.
At eight (31%) auditees the senior management vacancy rate has increased since 2010-11.
Senior management positions at two (8%) auditees were vacant for more than 12 months. However, at one (4%) auditee
the vacant position was not advertised within six months of becoming vacant.
Officials were directed to act in these positions until the vacancies were filled, but at two (8%) of the auditees the acting
periods were for longer than the accepted benchmark of six months. When a person acts in a position, they tend not to take on
the full responsibility, functions and powers of the post, with a lower commitment to the deliverables as a result of the temporary
nature of the position.
Municipal manager positions were vacant at three (12%) auditees. At these auditees the position had not been vacant for
more than 12 months and was advertised within six months of becoming vacant.
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Indicator
Vacant CFO positions
Vacant head of SCM
positions
Key findings
The position of CFO was vacant at four (16%) auditees. None of these positions had been vacant for more than 12 months. At
one (4%) of these auditees the vacant position was not advertised within six months of becoming vacant.
The head of SCM position was vacant at three (12%) auditees. The head of SCM position had been vacant for more than 12
months and the vacant position was also not advertised within six months of becoming vacant at one auditee.
The reasons for the continuing vacancies in provincial local government were the following:
• Municipalities were unable to attract the right skills to fill vacancies in time, especially municipalities in remote locations.
• Funding shortages and restructuring initiatives by the council were reasons for continuing vacancies at some of the municipalities.
• The percentage of the labour market within the province that was skilled to the required level of municipal requirements was low and caused positions to
be re-advertised, thereby increasing the amount of time it took to fill the vacant positions. Staff that would not have complied with the minimum
competency framework have resigned from the municipalities due to concerns about job security.
The impact of the vacancies was that these municipalities were unable to implement and monitor basic internal control disciplines in areas of financial
reporting, reporting on PDOs and compliance with laws and regulations. The failure to implement these internal control disciplines had a negative impact
on these municipalities’ ability to achieve clean administration and ultimately clean audit outcomes.
The following are recommended to address weaknesses in the management of vacancies and acting positions:
• The municipalities should consider implementing appropriate incentives to attract candidates to municipalities that are located in remote areas.
• The municipalities should consider offering bursaries to candidates that are studying toward careers in the financial field to create a pipeline, which
will alleviate the skills shortages that municipalities face. This will ensure that skills can be attracted to fill positions instead of re-advertising posts and
the creation of a long term-plan to address vacancies at municipalities.
• The provincial treasury and local government should intensify their efforts to assist with training and up skilling of existing employees at municipalities that
cannot attract the required skills.
Good Concerned Poor
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3.3.2 Competencies of key officials
The complexities in local government, the challenges experienced and the high expectations of the public demand that key personnel at municipalities have
the skills, experience and capacity to assume and fulfil their responsibilities and exercise their functions as required. The reforms in financial and performance
management have also resulted in a higher level of competency requirements than in the past for municipal managers, CFOs, senior managers, SCM officials
and other financial officials.
The poor audit outcomes, service delivery failures and the high demand for consultants and for support from national and provincial governments, however,
indicated an environment where the persons appointed in these posts did not have the required competencies.
The root cause of this was two-pronged – personnel who did not have the required competencies were appointed in key positions, and existing
employees did not keep up with the changing local government environment through ongoing training and development.
However, the implementation of the municipal regulations on minimum competency levels and the amendments to the Municipal Systems Act, 2000
(Act No. 32 of 2000) (MSA), is an opportunity to improve the situation. The regulations define the minimum competency levels of accounting officers, CFOs,
senior managers, SCM officials and other financial officials, taking into account the differences in size and scope of the municipalities. It provides for a
phasing-in period for staff currently in those positions to obtain the minimum competency level through academic studies and experience and by addressing
any gaps in competencies through training and development. The phasing-in period ended on 1 January 2013 and, as per the regulations, the affected
positions may not continue to be filled by persons who do not meet the minimum competency levels and this impacts on the continued employment of the
affected officials.
However, municipalities were granted an opportunity by the National Treasury to apply by September 2012 for an 18-month extension (until 1 July 2014) for
enforcing the regulations as a “special merit case” based on the particular circumstances faced by the municipality.
The amendments made to the MSA (effective July 2011) declare the appointment of a municipal manager without the minimum competency levels null
and void. It also provides for a defined process for appointing municipal managers, which includes monitoring and intervention by the MEC for local
government.
Table 27: Key findings competencies of key officials
Indicator
MM minimum
competency levels
Appointed municipal
managers did not meet
77
Key findings
By 30 June 2012 (six months from the effective date of the regulations), nine (38%) of the appointed municipal managers
in the province had not yet met the minimum competency levels defined in the regulations.
Two (8%) of these municipal managers did not have the required qualification, three (13%) did not meet any of the
prescribed competency requirements and four (17%) only met some requirements.
Three municipal managers appointed in 2011-12 did not meet the minimum competency levels.

Indicator
minimum competencies
CFO minimum
competency levels
Appointed CFOs
did not meet
minimum
competencies
Head of SCM
minimum
competency levels
Appointed heads of
SCM did not meet
minimum
competencies
Special merit cases
Compliance with
minimum
competencies
HR root causes of
poor audit
outcomes
Key findings
Two of these appointments were not made, subject to the condition that the minimum competency levels should be met by
1 January 2013.
None of the unconditional appointments were approved by the MEC for local government, which is a contravention of the
MSA.
Eight (36%) of the CFOs appointed in the province by 30 June 2012 did not yet meet the minimum competency levels
defined in the regulations.
Three (14%) of these CFOs did not have the required qualification, two (8%) did not meet any of the prescribed
competency requirements and three (14%) only met some requirements.
Three CFOs appointed in 2011-12 did not meet the minimum competency levels.
Two of these appointments were not made subject to the condition that the levels should be met by 1 January 2013 and
were not approved by the MEC for local government, which is a contravention of the MSA.
By 30 June 2012, eight (35%) of the heads of SCM appointed in the province did not yet meet the minimum competency
levels defined in the regulations.
One (4%) of them did not have the required qualification, two (9%) did not meet any of the prescribed competency
requirements and five (22%) only met some requirements.
Four heads of SCM appointed in 2011-12 did not meet the minimum competency levels.
All these appointments were not made, subject to the condition that the levels should be met by 1 January 2013. These
appointments were also not approved by the MEC for local government, which is a contravention of the MSA.
By 1 January all municipalities (100%) had applied to be considered special merit cases.
The annual report did not reflect information on compliance with prescribed minimum competencies in the case of three
municipalities (4%). Four municipalities did not submit to the treasuries a report on compliance with prescribed competency
levels.
Based on the audits and an assessment of the root causes of poor audit outcomes, the competencies of key officials
responsible for financial reporting at six (23%) auditees are deemed inadequate. At five (19%) of the auditees
competencies relating to performance reporting and at seven (27%) of the auditees competencies for ensuring
78

Indicator
Key findings
compliance with laws and regulations were deemed inadequate.
The reasons for the inadequate competencies of key officials and poor progress towards obtaining the minimum competency levels are listed below:
• Municipalities were unable to attract the right skills to fill vacancies in time, especially municipalities in remote locations.
• Basic financial disciplines, such as bank reconciliations, asset counts, proper record keeping and timely review of financial information were not instilled
through training (external and internal where there were some officials with the necessary skills).
• Capacity and resources in the form of a lack of financial resources, instability at CFO and municipal manager levels (vacancies and acting) and vacancies
and skills shortages (including GRAP) at finance units. Where municipalities are cash strapped the process of recovery may take several years.
The impact of the inadequate competencies was that these municipalities were unable to implement and monitor basic internal control disciplines in
areas of financial reporting, reporting on PDOs and compliance with laws and regulations. The failure to implement these internal control disciplines has
a negative impact on these municipalities’ ability to achieve clean administration and ultimately clean audit outcomes.
The following are recommended to address the weaknesses:
• Perform an assessment of the minimum competencies of all employees.
• The provincial treasury and local government should assist with training and up-skilling of its existing employees at municipalities that cannot attract
the required skills.
• Change the job grade of employees and place them in positions they are qualified for and for which they have the skills and competencies to perform
and fill the resultant vacancies with officials complying with the minimum required competencies.
3.3.3 Financial reporting assistance provided by consultants
Good Concerned Poor
As in previous financial years, auditees continued to engage consultants to assist them with accounting-related services and the preparation of year-end
financial statements. Nineteen (73%) auditees were assisted by consultants compared to 19 (73%) in 2010-11. Based on the available information, the cost of
consultants to auditees was estimated as having exceeded R13,4 million (2010-11: R 14,7 million) for the 2011-12 financial year, i.e. an average in excess of
R0,7 million per auditee. This excluded amounts spent by the National Treasury and provincial treasuries and the Department of Local Government on
consultants assigned to assist municipalities.
The following figure shows the most common reasons why consultants were engaged and the extent of use by auditees categorised per audit outcome, with
an indication of whether it is a recurring use and whether skills transfer took place. Not all improvements in audit outcomes (or the lack of improvement) can
be directly attributed to the use of consultants as the contracted scope of work varies from one auditee to the next.
79

Unqualified with no findings (5)
Unqualified with findings (20)
Recurring use at
3 auditees
60% (3)
used
consultants
Recurring use at
14 auditees
75% (15)
used
consultants
Skills transferred
No skills transfer at
7 auditees
Qualified with findings (1)
Recurring use
100% (1)
used
consultants
skills transferred
Reasons for
use of
consultants
16% 84%
Vacancies
Lack of technical skills
Observations
George, Langeberg and Swartland were financially unqualified with no findings and had used consultants even in the past financial years.
• George: The effectiveness of the use of consultants has greatly improved. Monitoring of the performance and deliverables of consultants took place and a
plan, such as the appointment of a permanent CFO, was being implemented to reduce the reliance on the consultants.
• Langeberg only used consultants as an additional control to review the financial statements for technical GRAP issues.
• Swartland made used of consultants to assist them with componentisation of assets obtained during the year under review.
Bergriver regressed from financially unqualified with findings to qualified with findings due to the incorrect determination by the municipality that emergency
inventory kept was not material and inadequate systems in place to maintain records of acquisitions and issues of emergency inventory. The following factors
contributed to the overall outcome. The consultants were appointed late to review the financial statements and not to verify/audit the source data. The CFO
80

was acting municipal manager for the period until the financial statements were due and did not sufficiently review the financial statements. The CFO’s deputy
was also on maternity leave for a large part of the audit, which impacted negatively on the ability of the municipality to resolve audit queries in a timely
manner. Furthermore, there was no one in a leadership position to ensure that the CFO, internal audit unit and the audit committee performed a proper review
of the financial statements before submission for auditing.
The remaining 15 municipalities remained unchanged on financially unqualified with findings. Thirteen of the 15 municipalities (87%) had submitted
financial statements that were subject to material adjustments from the audit process, resulting in non-compliance reported in the audit report, and the main
reason can be attributed to late engagement with the consultants. For the rest, they still had other findings relating to compliance with laws and regulations
and/or the report on PDOs, for which the consultants were not responsible for assisting with.
Overberg District, Laingsburg and Prince Albert improved from qualified to financially unqualified with other findings mainly due to the leadership taking
ownership of the work of the consultants and the leadership and management taking ownership of action plans to address previous findings. The consultants
were available to assist management to respond to audit queries and also worked together with the auditors towards an improved outcome.
Twelve of the 19 municipalities (63%) had a successful transfer of skills from the consultants to the municipal staff. This was evidenced by management’s
ability to respond independently to audit findings in most instances without having to rely on consultants in this regard and also by the decrease in the amount
spent on consultants (R13,4 million in 2011-12 and R14,7 million in 2010-11). The remaining seven municipalities did not have a skills transfer, mainly due to
the late engagement of consultants, impacting on their ability to add value, and underlying problems with the control environment in which the financial
information is produced.
Conclusion
There was still a need for the respective municipal managers to improve their oversight over the work of consultants to ensure that they transfer skills and
knowledge to the finance staff members and interns to reduce their dependence on external assistance in undertaking their financial responsibilities in the
current and in future periods.
The leadership of the affected municipalities should assess whether the ongoing use of consultants for the preparation of financial statements is the most
economical way of addressing their needs, also taking into account the need for continuity and sustainability of the function the consultants are engaged to
perform. The effective use of consultants to assist with the improvement in audit outcomes will also depend on the quality of information provided to
consultants, stability at CFO level and continued monitoring and direction provided by the executive mayors and municipal managers.
3.3.4 Performance management
Inadequate performance management of municipal managers, senior management and other officials was identified in 2010-11 to be at the root of many of
the failures of local government. The controls and performance objectives of the municipalities did not filter through to the performance contracts of municipal
officials in order to direct their daily operations.
81

A lack of discipline, an absence of commitment to serving the public interest and non-adherence to the code of conduct for municipal officials were identified
as root causes by national, provincial and oversight role players and were echoed in the experiences of the public at some municipalities. In order to improve
the performance and productivity of municipal officials, the leadership should set the tone by implementing sound performance management processes,
evaluating and monitoring performance and consistently demonstrating that poor performance has consequences.
Table 28: Key findings arising from the assessment of performance management processes
Indicator
Key findings
Signed
performance
agreement for
municipal
manager
Signed
performance
agreement for
senior managers
Establishment of
performance
management
system
Performance
evaluations for
senior managers
Two (8%) of the municipal managers appointed in the province did not have signed performance agreements for 2011-12.
Of those with performance agreements, two (8%) had not been signed by the mayor, while two (8%) did not comply with the
requirements of the MSA.
At two (8%) of the auditees senior managers did not have signed performance agreements for 2011-12. At one (4%)
auditee, 20% or more of the senior managers did not have signed performance agreements for 2011-12.
The performance agreements of senior managers were not all signed by the municipal manager at two (8%) auditees, while
at one (4%) auditee the performance agreement did not meet the requirements of the MSA.
Appropriate performance management systems were not established at three (12%) auditees to monitor, measure and
evaluate the performance of officials other than the municipal manager and senior management.
Performance evaluation was not done for all senior managers at one (4%) of auditee.
At two (8%) of the auditees performance bonuses were paid to senior managers in 2011-12 without a performance
evaluation being performed and approved by the council for the applicable year.
The following are the reasons for the weaknesses in the performance management systems:
• Vacancies and political instability caused the performance management system at municipalities not to be implemented.
• Lack of leadership accountability for the performance of staff at the municipality.
The impact of poor performance management:
• The lack of performance management will create an incentive for staff not to fulfil key responsibilities that they are responsible for, which will eventually
result in poor service delivery.
• Municipalities would not be able to implement and monitor basic internal control disciplines in areas of financial reporting, reporting on PDOs and
compliance with laws and regulations. The failure to implement these internal control disciplines has a negative impact on these municipalities’ ability to
achieve clean administration and ultimately clean audit outcomes.
82

Indicator
Key findings
The following are recommended to address the weaknesses:
• Poor performance should be penalised through appropriate measures instituted by municipalities, as per the MFMA and related regulations.
• Vacancies should be filled so that the performance management system is implemented by those responsible for this process.
• The tone of the leadership should encourage good performance and discourage poor performance.
Good Concerned Poor
3.3.5 Consequences for transgressions
In terms of the MFMA, financial misconduct is committed by a municipal manager, senior manager or other official if he/she deliberately or negligently:
• fails to comply with a duty imposed by a provision of the MFMA or fails to perform a delegated duty
• makes or permits, or instructs another official of the municipality to make, an unauthorised, irregular or fruitless and wasteful expenditure
• provides incorrect or misleading information in any document which, in terms of a requirement of the MFMA, must be submitted to the mayor or the
council of the municipality, the auditor-general, the National Treasury or other organ of state or must be made public
• contravenes a provision of the MFMA (municipal manager only).
The MFMA and the Disciplinary regulations for senior managers prescribe how such financial misconduct should be dealt with through an investigation
and disciplinary process, with sanctions if found guilty and criminal proceedings if applicable.
The SCM regulations further provide for steps to be taken if improper conduct was identified in SCM processes, while the MFMA prescribes the steps to
be taken to investigate and deal with unauthorised, irregular as well as fruitless and wasteful expenditure.
The findings in this general report relating to failure to meet legislated obligations and responsibilities, instances of non-compliance with legislation,
indicators of improper conduct in SCM and the occurrence of unauthorised, irregular as well as fruitless and wasteful expenditure require an appropriate
response in accordance with the mentioned legislation. Such a response should clearly demonstrate that there are consequences for transgressions by
officials in local government.
Table 29: Key findings related to steps taken to address transgressions
83

Indicator
Key findings
Allegations of
financial
misconduct
Allegations of
misconduct in
SCM
Response to
allegations
Recovery of
unauthorised,
irregular as
well as
fruitless and
wasteful
expenditure
Nineteen auditees (73%) recorded allegations of financial misconduct. Financial misconduct allegations were all investigated by
municipalities. Disciplinary hearings were not held in the case of one (4%) municipality where financial misconduct was confirmed.
Four (16%) auditees did record allegations of misconduct in the SCM processes.
Eight municipalities (31%) did not deal appropriately with allegations after investigations. The following illustrates the level of staff that
were implicated during investigations:
• Senior manager – two auditees (8%)
• SCM officials – four auditees (16%)
• Other officials – two auditees (8%)
Two (8%) auditees did not take the necessary steps to recover unauthorised, irregular as well as fruitless and wasteful
expenditure or approve/certify such expenditure as irrecoverable. The level of action is expected within the province as steps
for recovery are dependent on possible legal processes and outcomes in disciplinary hearings which can be a time-consuming
process.
The following were the reasons for the lack of consequences for transgressions by local government officials:
• Due to poor performance management of local government officials, consequences for transgressions in the form of investigations were not timeous.
• Lack of detailed action plans to address audit findings delayed follow-up action against local government officials that have transgressed.
The impact of the lack of consequences:
• An environment will be created which encourages transgressions due to lack of consequences.
• Local government officials that have transgressed will not be made to account for their actions.
The following are recommended to address the weaknesses:
• Investigations of transgressions should be timeous and follow-up action should be monitored by the council.
• Action plans in response to audit findings included time frames for follow-up action against local government officials that have transgressed.
• Performance management of local government officials should incorporate criteria, which promotes zero tolerance against those who have
transgressed.
Good Concerned Poor
84

3.4 Information technology management
3.4.1 Information technology management as a key driver of audit outcomes
Figure 13: Status of information technology across the Western Cape local government
1
Minimal movement in the status of information technology across local government and municipal
entities
Status of local
government
information
Confidentiality
The necessary level of secrecy is enforced
for all local government information. This
was assessed by auditing the following
focus areas:
• Security management
• IT governance
• User access controls
Integrity
All local government information is
authentic, remains unaltered until
authorised to change and is
complete. This was assessed by
performing data analytics and auditing the
following focus areas:
• Security management
• User access controls
Availability
All local government information is ready
for use when expected. This was
assessed by auditing the following focus
areas:
• Security management
• IT service continuity
Status of key
enabling
controls
Good governance
Effective management
Secure architecture / infrastructure
Management intervention required
2
The majority of auditees have challenges with the
design of controls and have not even begun to deal
with implementation and sustained effectiveness
3
Drivers of IT control weaknesses – many
cannot be addressed from within IT
IT control life cycle
Challenges
Level 1: Control design
At a minimum, management should design IT controls that
would address the threats and weaknesses identified in
vulnerability assessments. Particular attention should be
given to the threats and weaknesses that would impact the
confidentiality, integrity and availability of data.
Level 2: Control implementation
Challenges
Once the IT controls have been designed, management
should ensure that they are implemented and embedded in
IT processes and systems. Particular attention should be
given to ensuring that staff are aware of and understand
the IT controls being implemented, as well as their roles
and responsibilities in this regard.
Level 3: Control effectiveness
Management should ensure that the IT controls that have
been designed and implemented are functioning effectively
at all times. Management should sustain these IT controls
through disciplined and consistently performed daily,
monthly and quarterly IT operational practices.
IT matters not
prioritised
Inef f ective
management
of IT
Poor IT
governance
• Minimal executive involvement in matters
pertaining to IT
• Focus on operational IT activities rather than
strategic priorities
• Role of controlled IT environments in
effective service delivery is not understood
•
•
Overreliance on IT consultants
No technical skills to monitor IT
consultants
No skills transfer from consultants where
internal resources existed
IT vacancies not filled
Informal processes deemed to be
adequate
•
•
•
• Lack of IT policies and procedures
• Municipal management did not ensure that
key IT controls were designed and
implemented
• No consequences for not resolving prior
year audit findings
• Lack of oversight bodies for municipalities
85

3.4.2 Summary of the overall audit outcomes
IT controls were assessed in four key focus areas at 22 municipalities in the Western Cape, i.e. IT governance, security management, user access
management and IT service continuity management. Detailed IT general control audits were conducted at the 22 municipalities in the province that had
complex IT environments. The remaining four municipalities, i.e. the Cape Agulhas, Witzenberg, Bergriver and Overberg District Municipalities, did not have
complex IT environments. Their internal controls were therefore assessed by means of questionnaires. This process was followed to determine the readiness
of these municipalities for detailed IT audits and these assessments were not included as part of the overall IT audit outcomes.
An analysis of the audit outcomes indicated that the majority of municipalities experienced challenges with the design of IT controls. Although most
municipalities had initiated measures to design and implement IT controls in accordance with the commitments made in the previous audit cycle, adequate
progress had not been made in addressing the prior-year audit findings.
In most instances, the weaknesses in the IT control environment could be attributed to the shortage of in-house IT resources with specialised technical skills
to design and implement IT controls; and the over-reliance on third-party vendors for the provision of IT services. The lack of municipal oversight bodies to
track and monitor the implementation of IT controls as well as the lack of consequences for not resolving audit findings also contributed to the previous IT
audit findings not being resolved. Furthermore, management did not prioritise IT as a service delivery enabler. The reason for this was that the role of effective
IT environments in service delivery was not clearly understood.
3.4.3 Information technology governance
IT governance is the responsibility of both the executive and IT management. It is an integral part of organisational governance and consists of the leadership,
organisational structures and processes to ensure that the organisation’s IT resources would be able to sustain its strategies and objectives. IT governance
allows the organisation to manage IT risks and derive value from IT investments; and supports the achievement of business objectives that are dependent on
IT systems. The IT governance controls at the municipalities were evaluated in terms of their status in relation to the IT control life cycle, namely design,
implementation and operating effectiveness. The outcomes are shown below:
86

Figure 14: Information technology governance audit outcomes – municipalities
Minimal improvement
Controls not designed
Controls designed but
not implemented
Controls implemented
but not operating
effectively
No control weaknesses
Bitou
Breede Valley
Cape Winelands
District
Central Karoo
City of Cape Town
Drakenstein
Eden District
George
Hessequa
Knysna
Laingsburg
Langeberg
Matzikama
Mossel Bay
Overstrand
Prince Albert
Saldanha Bay
Stellenbosch
Swartland
Theewaterskloof
West Coast District
None
None
Beaufort West
87

3.4.3.1 Metropolitan municipalities
Service level agreements (SLAs) between internal and external providers of IT services to the City of Cape Town Metropolitan (metro) were not adequately
designed and formally implemented. Adherence to service levels and the performance of service providers was therefore not effectively monitored.
Root causes
• The existing informal processes followed in managing the performance of internal stakeholders were deemed to be adequate.
• Enterprise/support agreements for software licensing were used as a basis for measuring vendor performance.
• The IT service management tool had not been fully integrated into the IT environment to monitor the internal SLAs.
3.4.3.2 District and local municipalities
At the majority of the municipalities audited frameworks for IT governance and IT risk management had not been documented or approved. IT risk
assessments were not conducted and IT risk registers had not been established to ensure that IT risks would be managed appropriately. IT strategic plans
were also not in place at many municipalities.
Most of the district and local municipalities made use of third-party vendors for the provision of IT services. SLAs for these vendors either did not exist or had
not been formally approved. SLAs that had been established were, moreover, not reviewed and updated or renegotiated on a regular basis. Municipalities also
did not have formal mechanisms in place to measure the performance of IT vendors against the agreed service levels. As a result, third-party vendors could
not be held accountable for poor delivery of agreed services.
Root causes
• Management deemed the existing informal processes in place at their municipalities to be working well and therefore made no effort to formalise them.
• Executive management relied on the fact that the requirements with which IT service vendors had to comply had not changed and therefore did not update
their SLAs.
• Most municipalities lacked both the human and financial resources required to develop and implement IT governance controls.
• Although certain municipalities had IT resources in place, these resources lacked IT governance and IT risk management skills and were more
operationally focused.
• There was no proactive approach to the management of IT service providers.
• Existing SLAs and software licensing contracts did not include penalty clauses that could be enforced should the required services not be rendered.
88

Good practice
• At Beaufort West, adequate IT governance processes had been designed and implemented and were operating effectively. The effective operation of IT
governance processes at this municipality could be ascribed to the leadership demonstrated by municipal management in ensuring that an IT governance
framework was adopted and implemented, as well as to the effective management of IT risks and the establishment of an IT steering committee.
3.4.4 Security management
Security controls are measures designed by management to prevent and detect the risk of unauthorised access to the IT infrastructure that supports the
financial and performance application systems. This responsibility normally resides with the IT department. The security management controls at the
municipalities were evaluated in terms of their status in relation to the IT control life cycle, namely design, implementation and operating effectiveness.
Outcomes are shown below:
89

Figure 15: Security management audit outcomes – municipalities
Minimal improvement
Controls not designed
Controls designed but
not implemented
Controls implemented
but not operating
effectively
No control weaknesses
Beaufort West
Bitou
Cape Winelands
District
Central Karoo
Eden District
City of Cape Town
Drakenstein
George
Hessequa
Laingsburg
Langeberg
Matzikama
Mossel Bay
Prince Albert
Saldanha Bay
Stellenbosch
Swartland
Theewaterskloof
West Coast District
None
None
Knysna
Overstrand
3.4.4.1 Metropolitan municipalities
Controls had not been adequately designed and implemented at the City of Cape Town Metro to prevent unauthorised access to the network and information
systems. As a result, unnecessary network protocols/services were configured on the UNIX server, security logs were enabled but not reviewed and password
standards on the Systems, Applications and Products System (SAP) did not comply with the documented password policy. Although no instances of
unauthorised access had occurred at the City of Cape Town Metro during the period under review, appropriate IT controls should be implemented to prevent
this risk from materialising in future.
90

Root cause
• IT management considered the proactive review of logs as a labour-intensive exercise, given the high number of users to whom access had been granted
to the network and applications and the volume of logs generated by the system.
3.4.4.2. District and local municipalities
At most district and local municipalities IT security policies had not been adequately designed. Most municipalities did not have mechanisms in place for
reviewing security violations or failed logon attempts. Consequently, security breaches on the network or application systems might not be detected. Although
no instances of unauthorised access were identified at municipalities, appropriate IT controls should be implemented to prevent this risk from materialising in
future.
Root causes
• Municipalities that lacked IT resources relied on third-party service providers to maintain the IT security infrastructure and consequently did not have staff
with sufficient capacity or technical skills to review security logs.
• There were no processes in place for transferring IT knowledge and skills from third-party service providers to internal resources at municipalities.
• IT resources at some municipalities did not have sufficient knowledge regarding password security parameters and relied on prior-year audit findings to
provide guidance.
• IT resources at municipalities focused on day-to-day operations and considered the proactive reviewing of security reports to be a labour-intensive, lowpriority
task.
Good practices
No weaknesses were identified in the management of IT security at the Eden District, Knysna and Overstrand Municipalities. This could be attributed to the
leadership demonstrated by the IT manager, hands-on management and efficient use of available IT resources.
3.4.5 User access management
User access controls are measures designed by management to prevent and detect the risk of unauthorised access, creation or amendment of financial and
performance information stored in the application system. This responsibility normally resides within core and supporting business units. User access
management controls at the municipalities were evaluated in terms of their status in relation to the IT control life cycle, namely design, implementation and
operating effectiveness. Outcomes are shown below:
Figure 16: User access audit outcomes – municipalities
91

Minimal improvement
Controls not designed
Controls designed but not
implemented
Controls implemented but
not operating effectively
No control weaknesses
Beaufort West
Bitou
Breede Valley
Cape Winelands
District
Central Karoo
Drakenstein
Eden District
George
Hessequa
Knysna
Laingsburg
Langeberg
Matzikama
Mossel Bay
Overstrand
Prince Albert
Saldanha Bay
Stellenbosch
Swartland
Theewaterskloof
West Coast District
City of Cape Town
None
None
3.4.5.1 Metropolitan municipalities
The user access management controls designed for the City of Cape Town Metro were not consistently implemented or operating effectively across all
platforms and applications. As a result, the accounts of users no longer in the service of the metro were found to be active. In addition, the management of
users’ access to the SAP financial application was deemed inadequate due to the high number of users to whom access had been granted to sensitive SAP
basis transactions.
92

Root cause
• IT management considered the proactive review of logs as a labour-intensive exercise, given the high number of users to whom access had been granted
to the network and applications and the volume of logs generated by the system.
3.4.5.2 District and local municipalities
User account management practices at most municipalities were informal and had not been adequately designed to contain the key elements required to
mitigate the risk of unauthorised access to the financial systems. User access policies and procedures were also not documented or approved at the majority
of municipalities audited. With the exception of the Eden District, user access profiles were not regularly reviewed at municipalities to confirm that users’
system access was in line with their job roles and responsibilities.
Root causes
• Executive and IT management at municipalities deemed the informal user access management processes in place to be working well and therefore made
no effort to formalise them.
• At most municipalities, user access to the financial systems was managed by the finance department and these resources focused mainly on day-to-day
financial operations.
• Municipalities lacked adequately skilled resources to design and implement user access management controls, specifically regarding the monitoring and
review of users’ access rights and system controllers’ activities.
• Executive management was not held accountable and faced no consequences for failing to implement corrective actions that were committed to in prior
year audits.
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3.4.6 Information technology service continuity
IT service continuity controls are measures designed by management to ensure the availability of financial and performance information in the event of data
loss or a disaster. This responsibility is normally shared between the IT department and the business. IT service continuity controls at municipalities were
evaluated in terms of their status in relation to the IT control life cycle, namely design, implementation and operating effectiveness. Outcomes are shown
below:
Figure 17: Information technology service continuity – municipalities
Minimal improvement
Controls not designed
Controls designed but
not implemented
Controls implemented
but not operating
effectively
No control weaknesses
Beaufort West
Bitou
Breede Valley
Cape Winelands District
Central Karoo
Drakenstein
Eden District
George
Hessequa
Knysna
Laingsburg
Langeberg
Matzikama
Overstrand
Prince Albert
Saldanha Bay
Stellenbosch
Swartland
Theewaterskloof
West Coast District
City of Cape Town
None
Mossel Bay
3.4.6.1 Metropolitan municipalities
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A disaster recovery plan (DRP) had been adequately designed to ensure the effective continuity of IT services at the City of Cape Town Metro. However, only
one component of the DRP had been tested and there was no evidence that the plan had been reviewed during the year under review.
Root cause
• The testing of the DRP would result in significant down time and management was satisfied that the non-disruptive tests performed on the SAP financial
application by doing a QA refresh every fortnight, in addition to the testing of the one component, provided adequate assurance of IT service continuity.
3.4.6.2 District and local municipalities
Due to the cost involved in developing a DRP and the lack of sufficiently skilled IT resources, the focus of IT continuity was on backup management.
At most district and local municipalities there was a lack of adequately designed and formally approved backup procedures. Backups were also not monitored
for successful completion, kept at secure off-site storage facilities or periodically restored to ensure the recoverability of data.
Root causes
• Most municipalities lacked appropriately skilled resources to design and implement IT DRPs and backup procedures.
• Certain municipalities lacked the IT infrastructure and skills to restore the backups that had been taken.
• Reliance was placed on third-party vendors to manage backups.
Good practices
No weaknesses were identified in the management of IT service continuity at Mossel Bay. This could be attributed to the leadership demonstrated by
executive and IT management, the efficient use of available IT resources and the municipality’s overall understanding of the risks and the impact that a lack of
IT service continuity controls would have on the municipality.
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3.4.7 Quick wins and recommendations
Figure 18: Quick wins (controls to be designed and implemented immediately)
Control design
• IT policies and procedures should be approved by municipal councils.
• SLAs should be formalised and should make provision for the transfer of
skills to resources at the municipality.
• The IT governance framework developed by the South African Local
Government Association (SALGA) should be adopted by municipalities.
• The provincial treasury and the Office of the Premier should share IT
policies and procedures that have already been developed with
municipalities.
Control implementation
• Municipal management should ensure that the performance of service
providers is monitored to ensure adherence to SLAs.
• Municipalities with no control weaknesses should share their best
practices with other municipalities.
• Municipalities in close proximity to one another could leverage from the
skills of the other, share off-site backup storage facilities or act as
alternative disaster recovery sites for one another.
Figure 19: Recommendations (controls to be designed, implemented and sustained over time)
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Control design
• Municipalities should leverage on the IT policies and procedures that have
already been developed by the Office of the Premier and should tailor these to
suit their needs and IT environment.
• Local municipalities and district municipalities should share IT knowledge and
resources in order to reduce IT costs across municipalities.
• Municipal managers should ensure that development plans are established for
up skilling their IT staff.
Control implementation
• Vacant positions that have been approved should be filled.
• A shared disaster recovery centre should be established for the province.
Control sustainability
• Knowledge sharing with municipal councils and municipal management
regarding the importance of IT should be facilitated through the chief
information officer (CIO) forums.
• Internal audit units at municipalities should extend their scope to include IT
audits.
• Audit committees should play an oversight role to ensure that IT risks are
appropriately managed.
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3.5 Audit committees and internal audit units
Effective governance is a key driver of internal control, which in turn impacts on audit outcomes. Risk management and effective audit committees and internal
audit functions are key elements of this driver of internal control. In terms of the MFMA, an audit committee and internal audit unit must be established by all
auditees. Audit committees serve as independent governance structures whose function is to play an oversight role regarding the systems of internal control,
compliance with legislation, risk management and all other matters of governance. In executing its duties, the audit committee assists the accounting officer in
the effective execution of his/her responsibilities, with the ultimate aim of ensuring that the organisation achieves its objectives. Internal audit units form an
integral part in providing assurance on governance, risk management and internal control.
The figure below shows the results of an assessment of the effectiveness of audit committees and internal audit units.
Figure 20: Assessed effectiveness of audit committees and internal audit units
Aspect assessed
Assessment: Audit committee
Assessment: Internal audit
Positive impact
on audit outcomes
50%
50%
54%
46%
Interacts with
the executive authority
92%
8%
Not applicable
Evaluates compliance
with laws and regulations
73%
27%
92%
8%
Evaluates
supply chain management
77%
23%
92%
8%
Evaluates reliability/
integrity of performance information
58%
42%
54%
46%
Evaluates reliability/
integrity of financial information
62%
38%
62%
38%
Evaluates
internal controls
73%
27%
92%
8%
Fully compliant
with legislated requirements
62%
38%
71%
29%
In place
100%
92%
8%
Yes
No
The table below provides information on the key findings arising from the assessment.
Table 30: Assessment of the effectiveness of audit committees and internal audit units
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Governance structure aspect
Audit committee and internal
audit units in place
Audit committees and internal
audit units
fully compliant with legislation
Audit committees and internal
audit units evaluate internal
control
Audit committees and internal
audit units evaluate the
reliability of performance
information
Audit committees and internal
audit units evaluate SCM and
compliance with laws and
regulations
Key findings
• All the municipalities reported on had audit committees in place for the period under review, as prescribed by the MFMA.
Two (8%) of the municipalities reported on did not have internal audit units in place contrary to the requirements of the
MFMA.
• Ten (38%) of the audit committees did not comply with the legislated requirements while the majority of the internal audit
units complied with the legislated requirements, with seven (29%) of the existing internal audit units having shortcomings in
this regard. The following findings on audit committees relate to non-compliance with the MFMA:
o No review of performance management systems
o No review of effectiveness of internal control systems
o No review of effectiveness of internal audit function
o No review of adequacy, reliability and accuracy of financial reporting and information
o Not correctly constituted
o No review of risk areas of institution’s operations to be covered in the scope of internal and external audits
• Non-compliance findings related to internal audit units included the following:
o No/inadequate evaluation/advice or reporting on internal controls, accounting, risk and loss control
o No reporting to audit committee on compliance with legislation
o Performance measurements not audited on a continuous basis
o Quarterly reports, detailing performance against annual internal audit plan, not submitted to audit committee
o No three-year strategic internal audit plan
• Seven (27%) of the audit committees did not evaluate internal controls while only two (8%) of the internal audit units failed
in this regard. The majority of audit committees managed to assess internal controls at municipalities, which assisted them
to improve audit outcomes and their control environment.
• Audit committees and internal audits units have started to pay more attention to performance information, which was
evidenced by the marked improvement of the findings on performance information. However, 11 (42%) of the audit
committees and internal audit units did not evaluate the reliability of performance information, which contributed to 11
municipalities making material adjustments to their performance reports as reported in section 2.3.1 of this report.
• The reduction in the number of findings on SCM is as a result of 22 (92%) of the internal audit units and 20 (77%) of the
audit committees giving attention to SCM risks and other risks of non-compliance (including unauthorised, irregular as well
as fruitless and wasteful expenditure). However, the repeat external audit findings on compliance at some municipalities
indicated the need for a more intense focus on and improved attention to implementing external and internal audit
recommendations.
99

Governance structure aspect
Audit committees interact with
executive authority
Key findings
• Interactions between audit committees and their executive authorities provide a basis for progress towards clean audit
outcomes, especially as executive authorities are in a position to objectively assess the merits of audit committee
recommendations and have the authority and power to address obstacles that audit committees may encounter in
executing their mandate to promote sound governance, risk management and control.
• A total of 24 (92%) of the audit committees had regular interactions with the councils (executive authority) of their
respective municipalities. However, the repeat external audit findings on compliance at some municipalities indicated the
need for a more intense focus on and improved attention to implementing external and internal audit recommendations.
• Audit committees need to do risk assessments of their respective municipalities on areas of financial reporting, reporting
against PDOs, and compliance with laws and regulations. They should make recommendations to management and the
executive authority to address the identified risks.
Positive impact of audit
committees and internal audit
units on audit outcomes
• In order for the work of audit committees to have a positive impact on the audit outcomes of their municipalities,
management and the political leadership should take the recommendations of audit committees seriously and implement
them in a timely manner. The implementation of these recommendations needs to be monitored by the political leadership
on a regular basis with visible consequences for inaction.
• The work of audit committees (with the assistance of internal audit units) may not immediately translate into municipalities’
progression to clean audit outcomes. However, their work should be proven by improvement in the control environment of
municipalities which is the foundation upon which clean administration and improvements in audit outcomes can be
achieved.
• A total of 13 (50%) audit committees were assessed as having had a positive impact on the audit outcomes of their
respective municipalities as the municipalities had fewer or no findings on PDOs and/or compliance with laws and
regulations, compared to the previous financial year. The audit committee and internal audit units also played a major role
at the Swartland and West Coast District Municipalities that sustained their clean audit outcomes.
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SECTION 4: INITIATIVES AND IMPACT OF KEY ROLE PLAYERS ON AUDIT OUTCOMES
This section provides an overview of the impact of the key role players in local government. An assessment on these assurance providers is included in
section 4.1. The levels of oversight by municipal public accounts committees are included in section 4.2, while the interaction with mayors is included in
section 4.3. The commitments made by key role players, the status thereof and the impact on audit outcomes are reported in section 4.4, while section 4.5
outlines the AGSA’s ongoing initiatives to encourage clean administration.
4.1 Assurance providers in local government
The accountability of local government for their actions, performance, financial management and compliance with legislation serves as a cornerstone of
democratic governance in South Africa. The annual reports serve as a mechanism whereby the mayors and their municipal managers report on the financial
position of the auditee, its performance against PDOs and overall governance. One of the most important oversight functions of councils is the consideration
of auditees’ annual reports. For the council to perform its oversight function, assurance is needed that the information in the annual report is credible. To this
end, the annual report also includes the audit report of the AGSA, which provides assurance on the credibility of the financial statements and annual
performance report and the auditee’s compliance with laws and regulations.
In addition to the AGSA, there are other role players in local government that contribute to the credibility of financial and performance information and
compliance with legislation by ensuring that adequate internal controls are implemented at auditees.
The role players recorded below are (1) those directly involved with the management of the auditee (management/leadership assurance); (2) those that
perform an oversight/governance function, either as an internal governance function or an external monitoring function (internal independent assurance and
oversight); and (3) the independent assurance providers that provide an objective assessment of the auditee’s reporting (external independent assurance and
oversight).
The level of assurance provided by the role players was assessed based on the status of internal controls of auditees and the impact of the different role
players on the controls. In the current environment, characterised by inadequate internal controls, material misstatements in financial and performance
information and pervasive non-compliance with legislation, all role players are expected to provide an extensive level of assurance. The outcome of the
assessment of the province is shown below.
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Figure 21: Level of assurance provided by role players that form part of the auditee
First level of assurance
Management/leadership
Second level of assurance
Internal independent assurance and oversight
Third level of assurance
External independent assurance and oversight
Provides assurance
Provides some assurance
Provides limited/ no
assurance
Not established
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The table below shows the assessment per auditee and provincial role players:
Table 31: Level of assurance provided by role players that form part of the auditee (auditee level)
Auditee
Senior
management
Accounting
officer
Mayor
Audit
committee
Internal
audit
Municipal
council
MPAC
Beaufort West
Berg River
Bitou
Breede Valley
Cape Agulhas
Cape Winelands District
Central Karoo District
City of Cape Town
Drakenstein
Eden District
George
Hessequa
Knysna
Laingsburg
Langeberg
Matzikama
Mossel Bay
Overberg District
Overstrand
Prince Albert
Saldanha Bay
Stellenbosch
Swartland
Theewaterskloof
West Coast District
Witzenberg
Provides assurance
Provides some assurance
Provides limited/no
assurance
Not established
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Table 32: Comments on the level of assurance provided by role players
Role player
Comment
Senior management • Senior management, which includes the CFO, chief information officer and head of SCM, is responsible
for implementing the detailed financial and performance management controls. The assessment
demonstrates that they have, in most instances, provided some assurance while some failed to do so
adequately. The continued focus on the root causes reported by the AGSA will assist municipalities to
provide a satisfactory level of assurance.
Accounting officer • The impact of the accounting officers in creating an effective control environment is not evident at all
auditees. The leadership, planning, risk management, oversight and monitoring by the accounting
officers are absolutely critical. Failing to do this will not result in sustainable practices which translate
into improved audit outcomes.
Mayor • The number of interactions with mayors has increased from prior years and included quarterly
key control visits as well as additional interactions requested by the municipality and/or
training initiatives, together with the provincial treasury and the Department of Local
Government.
• The aim of these interactions is to highlight areas requiring the intervention of executive
authorities in trying to sustain clean audit outcomes and improve the audit outcomes of
municipalities and entities with unqualified audit outcomes.
• During the AGSA’s interactions with mayors in the past on their roles and responsibilities, any
remaining uncertainty was removed as to the role that mayors have to fulfil to ensure that the
municipalities move towards clean audit outcomes.
• The very slight improvement in the audit outcomes, is a direct result of the improving tone
being set from the top and commitments made by municipal leadership comprising mayors,
councillors and municipal managers.
• Although many mayors made themselves available to meet with the AGSA quarterly to
discuss the status of controls, very few municipalities have taken ownership of the control
assessments.
• Although the trend has been positive since last year, mayors have to date still failed to
exercise the level of oversight that was committed to in response to the prior year’s audit
outcome as a number of executive mayors have still not taken full ownership of the key control
document and satisfied themselves that identified areas of internal control weaknesses
receive the required level of attention.
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Audit committee • Audit committees are in most instances playing their role to ensure that internal audit is functioning at
the required level. This must continue to improve at all auditees to fully meet the extensive level of
assurance expected from them.
Internal audit • Internal audit units are in place at almost all municipalities. The leadership needs to continue to keep
their focus on fully functioning internal audit units so that sufficient assurance in the areas of financial
reporting, predetermined objectives and compliance with laws and regulations can translate into
positive impact on audit outcomes.
Municipal council • The councils did not sufficiently demonstrate an understanding of their oversight functions and
had not totally satisfied themselves that processes were implemented to ensure that reported
information was credible and reliable.
• Councillors had not taken full ownership of the key control document and satisfied themselves
that identified areas of internal control weaknesses received the required level of attention.
Furthermore, the councils did not, in all instances, call for regular financial and performance
reports and thus did not subject them to intense interrogation.
• The councils did not periodically review progress made by municipal management in
addressing external audit findings.
• The council did not periodically seek the findings and views of audit committees and internal
audit units on internal control and risk management; and monitor the implementation of
recommendations by the audit committee and internal audit units with a view to remedial
action.
• The councils did not take timeous action in instances of identified weaknesses or failure by
management and staff to perform statutory duties.
MPAC • The majority of municipalities had not established municipal public accounts committees
(MPACs). There is a long way to go before MPACs will achieve their intended oversight
effectiveness and impact on audit outcomes. The leadership and oversight structures, in
liaison with the AGSA, are encouraged to support the work of these committees.
As is evident from the audit outcomes presented in this general report, the activities and interventions of role players had limited impact. The assessment of
‘no significant identified impact’ does not imply that role players did not make efforts, but illustrates that the impact on the audit outcomes is not yet evident.
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Provincial role players do have a number of initiatives and interventions aimed at improving audit outcomes, some of which directly target the eight focus
areas assessed above. These include the following:
• Premier’s coordinating forum on clean audit outcomes and clean administration.
• Establishment of the municipal governance review outlook MGRO process at all municipalities supported by the provincial leadership.
• Finding avenues to establishment and train MPACs.
• Facilitating training for municipal officials on SCM.
• Assisting with the training and further development of audit committees and internal audit units at auditees.
• Supporting municipalities to develop fraud prevention plans and monitoring implementation.
At the end of the previous MFMA cycle, the key role players in the province made commitments to improve the audit outcomes of municipalities in the
province. The provincial political leadership, which included the premier, the MEC for finance and the MEC for local government, made a commitment to focus
on operation clean audit and to drive resources through the provincial executive committee meetings.
The table below gives a more detailed analysis of role player’s contribution to the attainment of sustainable audit outcomes.
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Table 33: Level of assurance provided by role players that form part of the auditee (coordinating/ monitoring institutions’ level)
Auditee
Coordinating/
monitoring
institutions and
Comment
provincial
oversight
Provincial treasury • The provincial treasury carries out a number of interventions in the
province, ranging from budgetary control, monitoring of monthly
reports and principles of financial management.
• The provincial treasury has reassessed its roles and responsibilities
in terms of local government and has now partnered with
municipalities in the form of the MGRO process. This process looks
at all aspects of local government per municipality to ensure that all
achieve clean administration, which will result in clean audit
outcomes.
Office of the Premier • The premier uses mainly the premier’s coordinating forum to
coordinate and monitor provincial oversight. The forum, which meets
bi-annually, is attended by the premier, all MECs, provincial treasury
and all the executive mayors, municipal managers and CFOs in the
province. This forum is aimed at addressing the financial
management issues highlighted at municipalities in previous auditor’s
reports and recommending appropriate actions.
• The premier has also embarked on a process with the provincial
legislature that will see a change to SCM legislation relating to
instances of state employees conducting private business with the
state. However, this process is still underway and has not yet had an
impact on the audit outcomes and reported compliance findings.
Cooperative governance • The MGRO process has aligned all spheres of government in the
province to focus the province on clean administration. Owing to the
late implementation of MGRO, the potential positive results will only
be seen in the coming year.
Portfolio committee on local government • The portfolio committee on local government oversight did not have
the desired impact on the audit outcomes of the province.
107

Auditee
Coordinating/
monitoring
institutions and
Comment
provincial
oversight
Provincial legislature • The speaker of the provincial legislature established a joint committee
to focus on local government oversight. The forum has not as yet
had any visible impact; however, coupled with the expected new
commitments from the legislature, as a whole, it is envisioned that
progress will be made going forward in moving to improved,
sustainable audit outcomes.
• The speaker has not yet established a speaker’s forum as well as a
chair of chairs forum for MPACs.
Provides assurance
Provides some assurance
Provides limited/no
assurance
Not established
Conclusion
At an overall level, the key role players in local government are providing minimal assurance. However, significant strides will have to be made if the required
level of assurance is to be provided for credible decision-making. The foundation for setting up processes to provide assurance involves skills, comprises
competence, ethics, embedded systems of control and an understanding of the roles and responsibilities by all role players, together with a strictly enforced
performance management system.
The assurance provided by senior management, accounting officers, internal audit units, audit committees, mayors and municipal councils is linked directly to
the implementation of controls. Internal controls that are properly designed and implemented as intended will assist in ensuring compliance with laws and
regulations and the production of credible performance reports and financial statements. Similarly, the quality and credibility of information supplied to
coordinating role players (Office of the Premier, local government and provincial treasury) have an impact on the assurance they provided. Currently, the
quality of information is not at the required level, which influences the effectiveness of these oversight bodies. It is thus essential that all role players take
ownership of the implementation and monitoring of key controls to ensure that all information produced for oversight and decision-making is accurate and
reliable, thereby enhancing credibility and accountability.
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4.2 Oversight by municipal public accounts committees
The establishment and functioning of an MPAC at municipalities were introduced in the province in 2011. When operating as intended, the MPAC will be one
of the most critical role players in municipal oversight and governance and should have a positive impact on audit outcomes. In short, the primary functions of
the MPAC include the following:
• Considering and evaluating the content of the annual report and making recommendations to the council when adopting an oversight report in the
annual report.
• Reviewing information relating to past recommendations made in the annual report. This relates to current in-year reports, including the quarterly, midyear
and annual reports.
• Examining the financial statements and audit reports of the municipality and municipal entities and considering improvements against previous
statements and reports.
• Evaluating the extent to which the audit committee and the auditor-general’s recommendations have been implemented.
• Promoting good governance, transparency and accountability in the use of municipal resources.
By the 2012 financial year-end, some municipalities had implemented MPACs. The table in section 4.1 reflects the municipalities that had not implemented
MPACs. The reasons for not implementing an MPAC ranged from:
• the municipality having no intention to implement an MPAC
• already having an audit and oversight committee and not seeing the need to have an MPAC even though the functions of an MPAC are enhanced
considerably
• waiting for a council meeting to discuss.
As shown in section 4.1, where MPACs have been established they are not yet providing the level of assurance required to contribute to the credibility and
reliability of financial and performance report, compliance with legislation and effective internal control.
The root causes of the ineffective functioning of MPAC are as follows:
• MPACs have not had the desired impact on audit outcomes and clean administration in local government due to their late establishment. There is a long
way to go before MPACs will achieve their intended oversight effectiveness and impact on audit outcomes.
The recommended way forward to strengthen the operation and functioning of MPACs is as follows:
• Provincial leadership and oversight structures, in liaison with the AGSA, are encouraged to support the establishment and work of these committees.
• MPAC hearings should be prioritised to ensure that monitoring and review are conducive to the reporting timelines of municipalities and in a rapid
response to audit committees.
• Resolutions should not only deal with purely financial matters, but also with financial management, PDO reporting and compliance for the committee to be
truly effective.
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• The role players within the municipality should submit quarterly reports to the MPAC on the implementation of its resolutions.
• A closer relationship with the portfolio committees is required to ensure coordination of resolutions and the monitoring thereof.
• New MPAC members should attend a thorough induction session where all the concepts contained in the audit report are explained.
• All MPAC members should be trained on a continuous basis so that this oversight structure can ensure accountability within local government and remain
relevant.
The way forward
In order to enhance the effectiveness of the MPACs, address the challenges highlighted in this report and move towards a best practice governance structure
at individual municipal level, the province should address all of the components shown below.
110

Figure 22: Municipal public accounts committee challenges to be addressed
Timeous hearings and resolutions
• MPAC hearings should be prioritised to ensure that monitoring and review are conducive to the
reporting timelines of municipalities and in a rapid response to audit outcomes.
Resolutions on financial management, compliance and
PDOs
• Resolutions should not only deal with purely financial matters, but should deal with financial
management, compliance and PDO reporting for the committee to be truly effective
Monitoring of implementation of resolutions
• The role players within the municipality should submit quarterly reports to MPAC on the
implementation of its resolutions.
Interaction with the executive (mayor and/or mayoral
committee)
• A close relationship with the budget and treasury portfolio committees is required to ensure
coordination of resolutions and the monitoring thereof.
Training and capacity building
• New MPAC members should undergo a thorough induction session where all the concepts
contained in the audit report are explained.
• The AGSA is committed to enhancing the understanding of its reports and will assist with this
process where considered necessary.
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4.3 Interactions with mayors
In response to the 2010-11 audit outcomes, mayors committed an hour of their time every 90 days to meet with AGSA senior management. At these
interactions the status of the key controls of auditees and commitments are discussed and identified risks shared. The table below shows the number of
interactions with the mayors and the assessed impact of the interactions.
Table 34: Interactions with mayors
Auditee Total number of interactions Evaluation of impact
Beaufort West 2
Berg River 4
Bitou 1
Breede Valley 2
Cape Agulhas 1
Cape Winelands District 0
Central Karoo District 1
City of Cape Town 3
Drakenstein 3
Eden District 2
George 4
Hessequa 1
Knysna 1
Laingsburg 1
Langeberg 1
Matzikama 3
Mossel Bay 1
Overberg District 4
Overstrand 3
Prince Albert 2
Saldanha Bay 4
Stellenbosch 0
Swartland 2
Theewaterskloof 3
West Coast District 5
Witzenberg 3
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Significant impact – improvement in audit
outcome
Significant impact – sustained clean audit
Some impact – improvement in key controls
Minimal impact – improvement expected
only in next financial year
No im pact
As can be seen in the table above, the number of interactions with the mayors has increased from prior years and included quarterly key control visits as well
as additional interactions requested by the municipality and/or training initiatives, together with the provincial treasury and the Department of Local
Government. The aim of these interactions is to highlight areas requiring the intervention of executive authorities in trying to sustain clean audit outcomes and
improve the audit outcomes of municipalities and entities with unqualified audit outcomes. During the AGSA’s interactions with mayors in the past on their
roles and responsibilities, any remaining uncertainty was removed as to the role that mayors have to fulfil to ensure that the municipalities move towards clean
audit outcomes. The very slight improvement but largely stagnation in the audit outcomes is a direct result of the improving tone being set from the top and
commitments made by municipal leadership comprising mayors, councillors and municipal managers. This is reflected in the fact that many mayors made
themselves available to meet with the AGSA quarterly to discuss the status of controls. Very few municipalities, however, have taken ownership of the control
assessments. Although the trend has been positive since last year, mayors have to date still failed to exercise the level of oversight that was committed to in
response to the prior year’s audit outcome as a number of executive mayors have still not taken full ownership of the key control document and satisfied
themselves that identified areas of internal control weaknesses receive the required level of attention.
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4.4 Initiatives and commitments of key role players to improve audit outcomes
The table that follows outlines the key initiatives of the provincial leadership and oversight to improve audit outcomes as well as further commitments made to
the AGSA for actions to be taken. The commitments include those made in response to the prior year’s audit outcomes and new commitments obtained
through in-year interactions and engagements with them between January 2013 and the date of this report. An assessment of the impact of the initiatives and
commitments is also provided.
Table 35: Commitments and initiatives of key role players in response to audit outcomes
Key role
players
Outline of initiatives and commitments made
Focus area
targeted by
initiative /
commitment
Progress
made with
implementing
commitments
Impact of
initiatives and
commitments on
audit outcomes
Prior year commitments/initiatives
Office of the
Premier
• The provincial leadership will:
o drive the strengthening of the relationship between the ministries of provincial
treasury and local government and municipalities
o review the effectiveness of the municipal-specific support and oversight
initiatives provided to the councillors and officials to enable them to address
financial and performance management at municipalities
o review the status of the quality, implementation and monitoring of the
municipalities’ action plans.
• The premier can monitor the relationship through feedback at the premier’s
coordinating forum.
The premier will ensure that operation clean audit, coordinated by the ministries of
provincial treasury and local government, will become a standing agenda item of the
premier’s coordinating forum for monitoring and evaluation of municipalities’ key
controls and commitments, as well as sharing of best practice in order to achieve
sustainable clean audit outcomes.
The premier will request internal audit units to present their findings at the premier’s
coordinating forum and use these sessions to follow up on the actions taken to
address the findings.
The premier will explore and implement the concept for a “twinning” system that will
pair well-performing municipalities with those requiring improvement in order to
114
SCM, PDOs,
FM, TP, IT,
HR, CONS &
GS
SCM, PDO,
FM, TP, IT,
HR, CONS &
GS
SCM, PDO,
FM, TP, IT,
HR, CONS &
GS
SCM, PDOs,
FM, TP, IT,
Complete
Complete
Complete
Not
implemented
Some impact
Some impact
Some impact
No impact

Key role
players
Outline of initiatives and commitments made
Focus area
targeted by
initiative /
commitment
Progress
made with
implementing
commitments
Impact of
initiatives and
commitments on
audit outcomes
transfer skills and share good practices to improve financial and performance
management.
The premier will raise the importance of an independent internal audit function which
is protected from political influence at the President’s Coordinating Council.
HR, CONS &
GS
SCM, PDO,
FM, TP, IT,
HR, CONS &
GS
In progress
No impact
New commitments/initiatives
In addition to the prior commitments which will remain a focus, the premier and all
role players have pledged their support for the municipal governance review outlook
(MGRO), a comprehensive action plan, which aims to address many of the
shortcomings at a local government level. In addition to being monitored at a
municipal level, MGRO will be monitored at the premier’s coordination forum, and the
provincial treasury will provide support and guidance to municipalities in the
development and implementation of MGRO.
SCM, PDO,
FM, TP, IT,
HR, CONS &
GS
New
Not yet able to
assess
Prior year commitments/initiatives
MEC Finance/
provincial
treasury
• The provincial treasury will:
o provide an online support helpdesk to assist with any queries related to the
financial statements, performance information and compliance with laws and
regulations
o evaluate whether all 30 municipalities have implemented the GRAP
framework. This will be done by providing workshops on the relevant
accounting frameworks
o analyse the audit outcomes to determine the transversal accounting and
governance issues which will inform specific training in 2012-13
o arrange the rollout of GRAP 104, 103 and 24 training by external service
providers
o get involved in MinMay and the premier’s coordinating forum to understand
the complexities faced by the municipalities and address their concerns in
follow-up sessions with CFOs and subsequent MinMay and premier’s
115
SCM, PDO,
FM
Complete
Some impact
FM Complete Some impact
SCM, PDO,
FM & GS
Complete
Some impact
FM Complete Some impact
SCM, PDO,
FM, TP, HR,
CONS & GS
Complete
Some impact

Key role
players
Outline of initiatives and commitments made
Focus area
targeted by
initiative /
commitment
Progress
made with
implementing
commitments
Impact of
initiatives and
commitments on
audit outcomes
coordinating forum sessions
o perform LG FGRO local government financial governance reviews for all 30
municipalities where areas such as accounting, SCM and corporate
governance are assessed
o engage the National Treasury to provide specific guidelines on laws and
regulations, practise and instruction notes, which should lead to a
government-wide consistent interpretation of fruitless and wasteful, irregular
and unauthorised expenditure
o drive the institutionalisation of enterprise risk management and internal audit
at all municipalities. These endeavours include having workshops with CFOs,
audit committees and other such similar bodies. This will be in cooperation
with the department of local government.
SCM, PDO,
FM
SCM
SCM, PDO,
FM & GS
Complete
Complete
Complete
Some impact
Some impact
Some impact
New commitments/initiatives
In addition to the prior commitments which will remain a focus, the premier and all
role players have pledged their support for the MGRO, a comprehensive action plan,
which aims to address many of the shortcomings at a local government level. In
addition to being monitored at a municipal level, MGRO will be monitored at the
premier’s coordination forum, and the provincial treasury will provide support and
guidance to municipalities in the development and implementation of MGRO.
SCM, PDO,
FM, TP, IT,
HR, CONS &
GS
New
Not yet able to
assess
MEC for local
government/
Department of
Cooperative
Governance
and
Traditional
Affairs
Prior year commitments/initiatives
• The Department of Local Government will:
o perform a readiness assessment to determine what municipalities should do
to manage and report on PDOs and assist municipalities with the
Complete Some impact
development of standard key performance indicators
PDO
o assist municipalities with the implementation of performance management
systems; participate in and provide support to interview panels; appoint a
service provider to assist with recruitment and to provide advice on
Complete Some impact
disciplinary matters
HR
o garner support for the establishment of MPACs and clarify the role of these GS Complete Some impact
116

Key role
players
Outline of initiatives and commitments made
Focus area
targeted by
initiative /
commitment
Progress
made with
implementing
commitments
Impact of
initiatives and
commitments on
audit outcomes
committees
o support the review by the premier of the appointment of internal audit units
and audit committees to strengthen the independence of these governance
structures
o continue with council training to strengthen oversight at their level
o provide quarterly progress reports on the above initiatives to the minister and,
when called upon, to the standing committee on local government.
There will also be a report to the premier’s coordinating forum twice a year.
PDO, HR &
GS
Complete
Some impact
New commitments/initiatives
In addition to the prior commitments which will remain a focus, the premier and all
role players have pledged their support for the MGRO, a comprehensive action plan,
which aims to address many of the shortcomings at a local government level. In
addition to being monitored at a municipal level, MGRO will be monitored at the
premier’s coordinating forum, and the provincial treasury will provide support and
guidance to municipalities in the development and implementation of MGRO.
SCM, PDO,
FM, TP, IT,
HR, CONS &
GS
New
Not yet able to
assess
Prior year commitments/initiatives
Provincial
portfolio
committee on
local
government
The joint oversight committee will continue with its reviews. As part of proactive
oversight, the municipalities’ key control documents will be used as a template for
interactions. Municipalities will provide quarterly feedback to the committee.
The joint oversight committee will report to Parliament on the outcome of reviews.
Parliament will in turn, through SCOPA, call upon municipalities to account for their
outcomes, if considered necessary.
The joint oversight committee, together with the MEC for local government will
continue with the training initiatives rolled out to local councillors. The possibility of
the involvement of Public Administration Leadership and Management Academy with
the executive leadership of municipalities will be explored.
Municipalities will be encouraged to budget appropriately so that MPACs can be
established in the 2012-13 financial year.
SCM, PDO,
FM, TP, IT,
HR, CONS &
GS
SCM, PDO,
FM, TP, IT,
HR, CONS &
GS
GS
In progress
In progress
In progress
Some impact
Some impact
No impact
117

Key role
players
Outline of initiatives and commitments made
Focus area
targeted by
initiative /
commitment
Progress
made with
implementing
commitments
Impact of
initiatives and
commitments on
audit outcomes
The possibility of provincial Association of Public Accounts Committees of South
Africa) and MPAC forums will be explored.
GS
In progress
No impact
New commitments/initiatives
Awaiting new commitments – the standing committee on local government oversight
has made commitments, but these have not yet been passed in the house. It is
expected that they would be passed before the end of May.
SCM, PDO,
FM, TP, IT,
HR, CONS &
GS
New
Not yet able to
assess
Abbreviations
FM SCM PDOs IT HR TP CONS GS
Financial
management
Supply chain
management
Predetermined
objectives
Information
technology
Human resource
management
Turnaround
plans
Consultants
Governance
structures
(internal audit
and audit
committees
118

4.5 Auditor-General of South Africa’s initiatives to encourage clean audits
Over the past two years, the AGSA has embarked on many initiatives to enhance accountability and to influence the process towards improving audit
outcomes and achieving clean administration. The main initiative was to further strengthen our relationship with the political and administrative leadership to
deepen their understanding of accountability, audit and governance mechanisms, thereby paving the way towards improving public confidence. This initiative
included the increased visibility of the AGSA’s senior leadership and continuous interactions to highlight possible challenges, audit findings and transversal
risks.
While the above has yielded limited results, the leadership will continue to refine its strategies to a new level of persistence, diligence and persuasiveness to
effectively bring across our messages and change the behaviour of the leadership of municipalities on both political and administrative levels.
Summarised below are some of the key initiatives the AGSA has undertaken to promote public sector accountability and to encourage the process of
improving audit outcomes and attaining clean audit outcomes.
Table 36: Auditor-General of South Africa's key initiatives
Nature
Root cause reporting
Quarterly assessment of key
internal controls with accounting
officers, CFOs, audit committees
and executive authorities, including
the premier, MECs for finance and
local government
Engagement with legislative
oversight
Outline of AGSA initiatives
We will continue to deepen our understanding of local government to enable us to always report accurately on
the root cause of the audit findings, as it relates to the drivers of internal control. Recommendations are made as
part of the audit finding to correct the misstatement, non-compliance, etc. but also to address the root cause in
order to assist auditees in finding sustainable solutions to prevent recurrent findings.
Root causes are also reported in the audit reports in order to provide the insight gained on what the significant
deficiencies in internal control are, which caused the qualifications and material findings on PDO reporting and
compliance with laws and regulations.
A basic assessment of the status of the key drivers of internal control is conducted on a quarterly basis although
not audited until the interim audit and/or final audit takes place. The results of the assessment are shared with
the accounting officer, executive authorities and audit committee.
The assessment and risks identified pertaining to the auditee are shared via a defined engagement programme
with these role players with the aim of meeting with them at least once per quarter. This engagement also serves
as an opportunity to obtain commitments from the role players on actions that will be taken to improve audit
outcomes and to discuss the status of prior commitments made.
Senior members of the AGSA teams engage with the relevant provincial portfolio committees, namely the
Standing Committee on Local Government Oversight and the Budget Committee and the Standing Committee
on Public Accounts in the province (directly or through the chairpersons) at least twice a year. They are also
available to the committees if they need briefings or insight on matters coming before the committee. It has
119

ecome standard practice to brief these committees on audit outcomes annually in order to assist them in
focusing on the most important matters to be addressed.
We will continue to encourage the establishment of municipal public accounts committees and promote the
training of these committees to carry out effective oversight.
Promoting an understanding of
PDO requirements
Promoting an understanding of IT
risks and controls
Collaboration with the provincial
treasury and local government
Collaboration with the South
African Local Government
Association (SALGA)
We will continue with our presentations on the requirements for reporting on PDO to auditees, executive
authorities and audit committees where a need was identified. In instances where further engagement and clarity
are required, sessions with the provincial treasury and local government are arranged to ensure that an
understanding is obtained regarding the requirements of the Framework for managing programme performance
information.
There is regular engagement on IT issues during steering committee meetings, quarterly engagements and
other stakeholder interactions to ensure an understanding of IT-related risks and controls.
A relationship exists with the provincial treasury and local government to highlight and address transversal
matters that impact on the audit outcomes at least on a quarterly basis and to address province-specific matters
that could arise.
The AGSA regularly participates in various forums concerning financial management, SCM and internal audit
with the aim of providing insights into root causes of audit findings and our recommendations, as well as
discussing matters that impact on the audit outcomes.
We will continue to engage with PT & LG to provide training to councillors.
The AGSA will strengthen its collaboration with SALGA and encourage a more coordinated approach among
SALGA and various role players such as national CoGTA, provincial treasury and the provincial local
government department to work together with the aim of developing targeted support for struggling municipalities
to improve their audit outcomes.
120

SECTION 5: FINANCIAL HEALTH OF LOCAL GOVERNMENT
This section provides the reported outcome of the assessments of the ability of municipalities to remain as going concerns (section 5.1) and of the financial
health indicators for municipalities (section 5.2).
5.1 Going concern
Under the going concern assumption, an auditee is viewed as continuing to operate for the foreseeable future. As the going concern assumption is a
fundamental principle in the preparation of the financial statements, management is required to assess the ability of the municipality or municipal entity to
continue as a going concern and make relevant disclosures in the financial statements. As part of the audit process, the AGSA also assesses whether there
are any events or conditions that may cast significant doubt on the auditee’s ability to continue as a going concern.
The financial statements of two (7%) auditees disclosed that a material uncertainty existed with regard to their ability to continue as a going concern. The
disclosure was also emphasised in the audit report. The table below provides detail on the auditees and the events and conditions that resulted in the
disclosure.
Table 37: Events and conditions of material uncertainty
Auditee
Central Karoo District
Overberg District
Events and conditions
The municipality experienced severe cash flow problems during the financial year. This is due to the fact that the
municipality has a very small revenue base, because of the large number of unemployed households within the
region. The municipality participated in the local government turnaround strategy. A recovery plan was also compiled
and submitted to National Treasury, which included a revenue enhancement strategy. There is evidence of
correspondence with the MEC for local government and more than one visit to the MEC for finance and MEC for
local government in connection with the financial position of the council.
The municipality incurred a net loss for the year ended 30 June 2012 and, as of that date, the municipality’s current
liabilities exceeded its total assets. This is due to a bigger increase in expenditure over the past few years than the
increase in grant funding. Large fees were paid to consultants to perform functions of officials that were suspended
with remuneration. The municipality also had to incur large amounts in legal fees due to a case against provincial
government and staff-related cases.
5.2 Financial health indicators
121

Management is responsible for the sound and sustainable management of the affairs of the municipality to which they are appointed and for implementing an
efficient, effective and transparent financial management system for this purpose, as regulated by legislation. The annual AGSA audits now include a highlevel
analysis of municipalities’ financial management indicators in order to provide management with an overview of selected aspects of their current financial
management and enable timely remedial action where the municipality’s operations and service delivery may be at risk.
The analysis is presented under the following headings:
• Budget and grant management (section 5.2.1)
• Debtor management (section 5.2.2)
• Creditor management (section 5.2.3)
• Financial performance and position and cash management (section 5.2.4)
• Concluding comments (section 5.2.5)
5.2.1 Budget and grant management
Figure 23: Overspending of the operational budget
35%
(9) 20%
16%
(1)
40%
40%
(8)
13%
Overall Metro District municipalities Local municipalities
Number and % of auditees that
overspent
Average overspending of the
budget
The figure above presents the overspending of final operational budgets per category of municipality, reflecting both the percentage of entities that overspent
and the average percentage overspending by the province. The analysis is based on municipalities’ final operational budgets, after adjusting the original
budgets.
122

Overall, 35% of municipalities overspent on their operational budgets by an average of 16% which correlates with non-compliance findings related to
unauthorised expenditure not prevented by eight auditees (31%). The metro did not overspend its operational budget. The overspending of one district
municipality by 40% was of great concern, while 40% of local municipalities overspent their operational budgets by an average of 13%. This indicated that the
quality of budgeting and management of revenue and expenditure against the budget was poor at this level of local government.
It is of concern that the level of overspending in the province does not correlate with the service delivery achievements reported in the annual reports, as 69%
of the municipalities (as reported in section 2.3) did not achieve at least 80% of their planned targets. This requires further investigation and remedial action by
the municipal leadership and governance structures.
Figure 24: Underspending of the capital budget
85%
(22)
28%
100%
(1)
8%
Overall Metro District municipalities Local municipalities
60%
(3)
73%
90%
(18)
22%
Number and % of auditees that
underspent
Average underspending of the
budget
The figure above presents the underspending of final capital budgets per category of municipality, reflecting both the percentage of entities that underspent
and the average percentage underspending in the province. The analysis is based on municipalities’ final capital budgets, after adjusting the original budgets.
Overall, 85% of municipalities underspent their capital budgets by an average of 28%, with the metro underspending by 8%. A total of 60% of district
municipalities underspent by an average of 73%, and 90% of local municipalities underspent by an average of 22%.
The district municipalities achieved less than 80% of their planned targets partly due to the significant underspending of their capital budgets.
Figure 25: Underspending of conditional grants
123

69%
(18)
100%
(1)
60%
(3)
70%
(14)
14% 12% 4%
16%
Overall Metro District municipalities Local municipalities
Number and % of auditees
that under-spent
Average under-spending of
conditional grants
The figure above presents the underspending on conditional grants per category of municipality, reflecting both the percentage of entities that underspent and
the average percentage underspending in the province.
The metro underspent its conditional grants by 12%, with 60% of district municipalities underspending by an average of 4%, and 70% of local municipalities
underspending by an average of 16%. Overall, 69% of municipalities underspent their conditional grants by an average of 14%.
The underspending on the capital and conditional grant allocations is concerning as these allocations are intended to enhance the ability of municipalities to
deliver services to their citizens. This underspending may indicate, among other factors, lack of credible reporting on the use of conditional grants and capital
budgets, poor capital budgeting and management of adjustment budgets, weak capital project implementation planning and a shortage of suitably skilled
engineers and technicians to implement capital projects.
Conclusion on capital budgets and conditional grants
The municipal and provincial leadership should insist on credible monthly reports that measure actual expenditure against budgets and service delivery. The
reported actual expenditure (capital and current) should be properly reconciled. The governance structures should give assurance to the leadership that all
reports provided to them are credible. These reports should be monitored regularly and appropriate corrective actions taken where necessary.
In addition, the Department of Local Government and the provincial treasury should assist all municipalities through the municipal governance review outlook
initiatives to identify their human resource capacity to manage major capital projects, and measure the existing capacity against the number and value of
budgeted capital projects. Where shortfalls in capacity are identified, appropriate appointments and/or direct hands-on support through the deployment of
experts from the panel established by Department of Local Government and/or outsourcing should be considered.
124

5.2.2 Debt management
The following figure indicates the average period in days that it takes the different categories of municipalities to collect outstanding consumer debts, both
before and after impairment (write-off) for uncollectable debtors. The graph also shows the extent, in percentage terms, to which debtors were written off
(impaired).
Figure 26: Debt-collection period
Reduction in book value
after impairment: 28%
Reduction in book value
after impairment: 35%
Reduction in book value
after impairment: 33%
Reduction in book value
after impairment: 51%
137
116
119
71
62
41
81
30
Movement in collection period: (days):
Overall
Movement in collection period:
Overall (days)
Local Municipalities
Movement in collection period:
Overall (days):
District Municipalities
Movement in collection period:
Overall (days):
Metropolitan Municipalities
Debtor collection period
(after impairment)
Debtor collection period
(before impairment)
It took municipalities 137 days (4,5 months) on average to collect outstanding amounts from consumer debtors where no provision was made for uncollectable
debt. The collection period decreased to an average of 71 days (2,4 months) if 28% of debts were written off. The difference between the debt-collection
periods before and after write-off and the extent of impairment of debts may be the result of the continuing year-on-year growth in both the outstanding debts
and not taking action to identify and write off bad debts.
The metro achieved a 30-day (one month) collection rate, but impaired 51% of their consumer debts to do so. District municipalities required 41 days (1,4
months) to collect debts after a 33% write-off of debts, with the situation being worse at local municipalities with a 62-day (two months) collection period after a
125

35% write-off of debts. Only three district municipalities were included in the analysis of the debt-collection period and debt-collection intervals as two district
municipalities did not have any consumer debts at year-end.
The extended collection periods may result in cash flow problems, adversely affecting operational management. The excessive write-off of debts by the metro
highlighted the widespread culture of non-payment for services by consumers. This may negatively impact on the maintenance of infrastructure, resulting in a
deteriorating level of consistent quality service delivery.
Figure 27: Debt-collection intervals
100%
13%
67%
54%
55%
33%
25%
30%
0% 0% 0% 100% 0% 0% 0%
5%
4% 5% 4%
5%
0 to 30 days 30 to 60 days 60 to 90 days 90 to 120 days More than 120 days
Overall Metro District municpalities Local municipalities
The figure above elaborates on the debt-collection analysis and shows the extent of municipalities, per category of municipality, that collect their debts within
the indicated debt-collection intervals after having been adjusted for the write-off of bad debt.
The metro collected its debts within 30 days. All the district municipalities were able to collect debts within 60 days, with 33% being collected within 30 days. A
total of 60% of local municipalities collected debts in 60 days and a further 30% was collected within 90 days.
The analysis of debt-collection intervals is after the impairment has been taken into account and indicated a more favourable collection period and the overall
debts impaired or written off are significant.
Conclusion on debtor management
126

The poor collection days before impairment have a negative influence on the cash flow of municipalities. This also resulted in delays in the implementation of
capital projects. Revenue collection and debtor management should be improved by updating policies and ensuring that adequate capacity exists to
implement the policies and the requirements of the policies are strictly enforced. The accounting officers should consider writing off debts after they have
exhausted all reasonable steps to collect the amounts outstanding.
5.2.3 Creditor management
In accordance with section 65(2)(e) of the MFMA, “all money owing by the municipality must be paid within 30 days of receiving the relevant invoice or
statement, unless prescribed otherwise for certain categories of expenditure”.
The following figure shows the average number of days that it took the different categories of municipalities in the province to pay suppliers. This reflects on
how long an entity holds onto its cash.
Figure 28: Creditor-payment period
42
66
26
45
Overall Metro District municipalities Local municipalities
Overall, it took municipalities 42 days (1,4 months) on average to pay creditors. The metro took 66 days (2,2 months) to pay its creditors according to the
analysis above. The metro followed a strict 30-day payment policy and the analysis above may be a result of accruals included in the year-end balance that
were not yet payable. The number of days required by district and local municipalities to pay their creditors were 26 days (one month) and 45 days (1,5
months), respectively.
Where there was delayed receipt of payment by suppliers who provided goods and services to municipalities it could lead to reluctance on the part suppliers
to do business with local government.
127

The following figure elaborates on the creditor-payment analysis and shows the extent of municipalities, per category of municipality, which pay their creditors
within the indicated creditor-payment intervals.
Figure 29: Creditor-payment intervals
100%
60%
50%
55%
35%
40%
30%
11%
10%
4%
5%
0 to 30 days 30 to 60 days 60 to 90 days 90 to 120 days More than 120 days
Overall Metro District municipalities Local municipalities
A total of 100% of district municipalities and 85% of local municipalities pay within 60 days, with 60% and 30%, respectively, settling outstanding amounts with
suppliers within 30 days.
Amounts used in calculations above may include accruals in the year-end balance that were not yet payable as most municipalities pay their creditors within
30 days. In some instances where cash flow constraints were experienced, the payment of creditors was delayed.
The following figure compares the prior debt-collection periods and creditor-payment periods, indicating in number of months the difference between the
average periods taken to collect from consumers and to pay suppliers.
Figure 30: Debtor-collection period (after impairment) versus creditor-payment period
128

1,9
1,4
1
2,2
1,4
1
2
1,5
Overall Metro District Municipalities Local Municipalities
Debtor collection period - months
Creditor payment period - months
Overall, municipalities took slightly longer to collect debts than they took to pay creditors. A reverse trend was evident for the metro that, on average, collected
debts in one month, but only paid creditors in two months and two weeks; however, this may be distorted as previously explained.
The results reflect the time delay between turning receipts from consumers into payments to suppliers and are indicative of how much cash reserves
municipalities require in order to sustain their operations and manage working capital effectively and economically, as is required by the MFMA.
Conclusion on creditor management
The municipal leadership should implement systems and processes to ensure that transactions with suppliers are recorded promptly, are properly reconciled
and are paid on time. The governance structures should provide assurance to the leadership and the council that the strategies employed to mitigate the risks
of late payment are adequate.
129

5.2.4 Financial performance and position and cash management
The following figure reflects the number of municipalities, per category of municipality, where revenue for the year exceeded expenditure (net deficit), where
current assets were less than current liabilities at year-end (net current liability position) and where the year-end bank balance was in overdraft.
Figure 31: Financial performance, position and cash management
13
9
6
4
3
4
2 2
1
Overall Metro District municipalities Local municipalities
Overall, 13 municipalities realised a net deficit, most of which are represented by local municipalities (9). Two district municipalities had both net deficits for the
year and current liabilities in excess of current assets, with one local municipality also being in this situation.
Furthermore, two district municipalities’ and one local municipality’s year-end bank balances were in overdraft due to inadequate cash flow management and
budget monitoring and management. This is in contravention of the legislated requirement that prevents municipalities from closing the financial year with any
short-term debt (MFMA section 45).
Conclusion on financial performance, position and cash management
Net deficit - Yes Net current liability - Yes Bank overdraft - Yes
Municipalities with current liabilities exceeding current assets may have difficulty in meeting suppliers’ demands for payment. Combined with other factors
such as the negative results from operations (net deficit position) and an overdraft bank balance, it points to inefficient and ineffective operational
management. These municipalities may experience cash flow problems and may find it necessary to use a portion of their conditional grant funding for
payment of liabilities, thus adversely impacting on future activities and service delivery. Mayors, municipal managers and councils should actively monitor their
actual expenditure against budgets, based on credible monthly reports. They should also take effective action where it becomes apparent that deficits may be
incurred, as this could place the financial sustainability of their institutions in doubt. Where it becomes apparent that the municipalities’ financial situation is
dire, the processes prescribed in chapter 13 of the MFMA should be followed.
130

5.2.5 Concluding comments
The financial management practices in the province’s municipalities were generally not adequate. Control environments, incorporating accounting disciplines,
cash flow and budget management, are weak and contribute significantly to the findings on financial health reported above which impact significantly on the
ability of the municipalities in the province to deliver services to its citizens and to prevent non-compliance to the MFMA.
The municipal leadership, assisted by the Department of Local Government, the provincial treasury and governance structures, must take effective steps to
address the control environments in order to improve the overall financial health of the province’s municipalities. The development of a municipal financial
analysis tool, which is being spearheaded by the Swartland Municipality, should be expedited to enable timely remedial action where financial health and
service delivery of municipalities may be at risk.
131

2011-12
audit outcome
2010-11
audit outcome
Financial statement qualification areas
Findings on predetermined
objectives
Findings on areas of compliance
Findings on specific
focus areas
Unauthorised. irregular, as well as fruitless and wasteful expenditure
Root causes
Number
Auditee
Audit opinion
Predetermined objectives
Compliance with laws and regulations
Audit opinion
Predetermined objectives
Compliance with laws and regulations
Non-current assets
Current assets
Capital and reserves
Other disclosure items
Revenue
Reported information not useful
Reported information not reliable
1
1 #### #### #### #### #### #### ##### #### ### N R 0 0 R 0 R N R R 0m R 14.9m R 0m 1
1
1 N 0 0 0 A 0 R 0 R R 0m R 219k R 0m 1 1
1 1 1 A A N R R R N R R A R R 1.8m R 597k 2 1 1
1 1 1 1 A R A R 0 0 R A R N R R 1m R 15m 2 1
1 1 1 1 A R N N N N R R R R R R 15.9m R 16k R 0m 1 1 1
1 1 1 1 N R R N R R R R N R R 43m R 537k R 4.5m 2 1 2
1
1 R A R A A R R R R 0.0m R 3.9m R 0m 2 1 1
1 1 1 1 A R A R R N R N A 0 R 10.4m R 2m R 0m 1 1
1 1 1 A A R A 0 N A N R 0 R R 48.6m R54k R 0m 1
R 31.9m R 38k R 11k
A A N A A A A A N R R R 0.0m R 53k R 27k 1 1
N R N A 0 0 R R R A R R 239.6m R 496k R 194k 2 1
1 1 1 1 A R R R R R A R R N R R 34.7m R 5.9m R 0m 1
1
1 N A 0 0 A N A 0 R R 325k R 104k 1
1 1 1 A A R A N A A N R 0 R R 0.0m R 211k R 2.6m 1
1 1 1 1 N R A 0 A A N R 0 R R 0.0m R 0m R 0m 1 2
A R R 71.2m R 5.3m R 0m 1
1 1 1 1 R R R R A 0 A R R A A R 13.7m R 0m 1 1
1 1
1 N 0 0 A N R 0 0 R 0m R 2.7m R 0m 0 1
1 1 1 1 R 0 0 0 R 0 0 0 R 0m R 0m 1
Metropolitan Municipalities
1 City of Cape Town
Financially
Financially
with findings d with
unqualified
unqualifie
District Municipalities
2 Cape Winelands District Municipality
Financially
Financially
with findings d with
unqualified
unqualifie
3 Central Karoo District Municipality
Financially
Financially
with findings d with
unqualified
unqualifie
4 Eden District Municipality
Financially
Financially
with findings d with
unqualified
unqualifie
5 Overberg District Municipality
Financially
1 1 1 1 A A R R R R A R R R 0 0 2 1 2
with findings
unqualified
Qualified R 7.5m R 3.9m R 0m
6 West Coast District Municipality
Financially
Financially
unqualifie
d with no
0 0 0 0 0 N 0 R R 0m R 0m R 0m
unqualified
with no
Local Municipalities
7 Beaufort West Municipality
Financially
Financially
d with
unqualified
unqualifie
8 Bergrivier Municipality
with findings
Qualified
1 1
Financially
1 1 N R R R R N 0 A R R 0 A 2 1 1
d with
unqualifie
R 27.6m R 1.2m R 0m
9 Bitou Municipality
Financially
Financially
with findings d with
unqualified
unqualifie
10 Breede Valley Municipality
Financially
Financially
with findings d with
unqualified
unqualifie
11 Cape Agulhas Municipality
Financially
Financially
d with
unqualified
unqualifie
with findings
Audit
12 Cederberg Municipality
outsta
Financially
Financially
1 1 0 0 0 0 0 0 0 0
d with
unqualifie
13 Drakenstein Municipality
Financially
with findings d with
unqualified
unqualifie
14 George Municipality
Financially
Financially
1 A A 0 0 A 0 R N R 1
d with
unqualified
unqualifie
with no
15 Hessequa Municipality
Financially
Financially
unqualified
unqualifie
1
with findings d with
Audit
Discla
16 Kannaland Municipality
outsta
imer Financially
Financially
1 1
1
1
1
1
1
1 17 Knysna Municipality
with findings d with
unqualified
unqualifie
18 Laingsburg Municipality
Financially
1 1 1 A A A A N N R R R R R R R A R 1 1
with findings
unqualified
Qualified R 5.3m R 8.5m R 26k
19 Langeberg
Financially
Financially
unqualifie
d with
1 A A A 0 A A R N R R 2.4m R 0m R 0m
unqualified
with no
20 Matzikama Local Municipality
Financially
Financially
with findings d with
unqualified
unqualifie
21 Mossel Bay Municipality
Financially
Financially
unqualifie
d with
1 1 A A 0 0 0 A A R 0 R R 464.4m R 757k R 0m
unqualified
with no
Audit
22 Oudtshoorn Municipality
outsta
Financially
Financially
unqualifie
d with
1 1 0 0 0 0 0 0 0 0 R 0m
23 Overstrand Municipality
Financially
with findings d with
unqualified
unqualifie
24 Prince Albert Municipality
Financially
1 1 1 A A A R A R R A R R R R 1
with findings
unqualified
Qualified R 2.2m R 341k
25 Saldanha Bay Municipality
Financially
Financially
with findings d with
unqualified
unqualifie
26 Stellenbosch Municipality
Financially
Financially
with findings d with
unqualified
unqualifie
27 Swartland Municipality
Financially
Financially
unqualifie
0 0 0 0 0 0 0 R R 8.3m R 0m R 12k
unqualified
with no
d with no
Audit
Discla
28 Swellendam Municipality
outsta
imer Financially
Financially
1
1
1
1
1
0
R
0
0
0
0
0
R
0
R
0
R
0
0
0
R 29 Theewaterskloof Municipality
with findings d with
unqualified
unqualifie
30 Witzenberg Municipality
Financially
Financially
with findings d with
unqualified
unqualifie
Municipal entities
31 Cape Town Internat. Convention Centre
Financially
Financially
with findings d with
unqualified
unqualifie
32 Knysna Economic Development Agency
Financially
Financially
with findings d with
unqualified
unqualifie
Information not submitted in time for audit
No annual performance report
Material misstatement/limitations in
submitted AFS
Unauthorised, irregular, as well as fruitless
and wasteful expenditure
Audit committees
Internal audit
Procurement management
Other compliance areas
Procurement and contract management
HR management and compensation
IT controls
Movement
Unauthorised
expenditure
Amount
R
Irregular expenditure
Movement
Amount
R
Fruitless and wasteful
expenditure
Movement
Amount
R
Key positions vacant or key officials lacking
appropriate competencies
Consequences for poor performance and
transgressions
Response by political leadership in
addressing the root causes of poor audit
outcomes
Legend (Audit outcomes)
Unqualif ied w ith no
findings
Unqualif ied w ith
findings
Qualified w ith
findings
Adverse w ith
findings
Disclaimer w ith
findings
Audit outstanding
Findings
Legend
(Findings)
Addressed New Repeat
Legend (Root
Legend (Movements) Improvement Regression
causes)
Good
Causing
concern
Intervention
required
Page 1 of 1

Assessment of auditees’ key controls at the time of the audit
Legend
Good
In Progress
Intervention Required
Improved h Unchanged n Regressed
i
Audit Year: 2011/2012 Sphere: Local Government
Business Unit: Western Cape
Assessment period: YearEnd Financial
F Performance P Compliance
C
Leadership
Financial and performance
Governance
Auditee
Movement
Effective
leadership
culture
Oversight
responsibility
HR Management
Policies &
procedures
Action plans
IT
governance
Movement
Proper record
keeping
Processing and
reconciling
controls
Reporting
Compliance
IT Systems
controls
Movement
Risk
management
Internal
audit
Audit committee
F P C F P C F P C F P C F P C F P C F P C F P C F P C F P C F P C F P C F P C F P C F P C F P C F P C
Metropolitan Municipalities
City of Cape Town n h n 1 1 1 1 1 1 1 1 1 1 1 2 1 2 2 1 1 0 n h n 1 2 1 1 2 1 2 2 1 2 1 2 2 1 0 n h n 1 1 1 1 1 1 1 1 1
District Municipalities
Cape Winelands District i i i 1 1 1 3 1 2 3 1 1 1 1 1 2 1 1 1 1 1 i i i 2 2 2 3 1 2 3 1 2 1 1 3 3 1 1 i n n 2 2 2 1 1 1 1 1 1
Central Karoo District i i i 1 1 1 3 3 3 2 2 2 3 3 3 3 3 3 3 2 2 i i i 3 2 2 3 2 2 3 2 2 3 3 3 3 2 2 n n n 3 3 3 3 3 3 3 3 3
Eden District h n n 1 1 1 1 1 1 2 2 2 1 2 2 2 2 2 2 2 2 h i i 1 2 3 2 2 2 2 3 2 2 2 3 2 2 2 n i n 2 2 2 2 2 2 2 2 2
Overberg District h h h 1 1 1 3 2 2 3 2 3 1 1 1 3 1 3 2 2 2 h h h 2 3 2 2 1 2 3 2 3 3 1 3 2 1 1 h h h 2 1 2 1 1 1 3 3 3
West Coast District i i i 1 1 1 1 1 1 2 2 2 1 1 1 1 1 1 3 3 3 i i i 2 2 1 1 1 1 2 1 1 2 2 2 3 3 3 h h h 1 1 1 1 1 1 1 1 1
Local Municipalities
Beaufort West i i i 1 1 1 2 3 2 2 1 1 1 2 1 2 2 2 1 3 3 i i i 1 1 1 2 3 2 2 3 2 2 2 2 3 2 2 h n n 1 3 3 2 2 2 1 2 2
Berg River i h i 1 1 1 2 2 2 3 2 3 2 2 2 3 3 3 3 2 2 i i i 2 2 1 3 3 3 3 3 3 2 2 2 2 2 2 h h h 2 2 2 2 2 2 2 2 2
Bitou i i n 1 2 1 2 3 2 2 3 2 1 3 1 2 3 2 3 3 3 n i n 2 3 2 2 3 2 2 3 2 2 3 3 2 3 3 h i h 2 3 2 2 3 2 2 3 2
Breede Valley n h n 1 1 1 3 1 3 1 1 1 1 1 1 1 1 1 1 1 1 h h h 2 1 1 2 1 1 1 1 1 2 1 2 1 1 1 h h h 1 1 1 1 3 3 1 1 1
Cape Agulhas i h n 1 1 1 1 3 3 1 1 2 1 1 1 2 2 3 1 1 1 i h h 1 1 1 1 1 1 2 3 2 1 2 3 1 1 1 h h h 1 1 1 2 2 2 1 2 2
Drakenstein h h h 1 1 1 1 1 1 3 1 3 2 2 2 2 1 2 3 1 1 i h h 2 2 2 3 2 1 3 2 1 2 2 2 2 1 1 h h n 1 1 1 2 3 3 2 2 2
George n n n 1 1 1 1 1 1 1 2 1 1 2 1 1 2 1 3 3 3 h h h 1 2 1 1 2 1 2 2 1 1 2 1 2 2 2 n n n 1 2 1 1 1 1 1 1 1
Hessequa h h h 1 1 1 2 2 2 1 1 2 1 1 1 3 3 3 2 2 2 h h h 1 1 1 1 1 1 2 2 2 1 1 1 2 2 2 h h h 1 1 1 1 1 1 1 1 1
Knysna i n i 1 1 1 3 3 3 2 2 2 1 1 1 3 3 3 3 3 3 i i i 1 3 1 2 2 1 3 3 3 2 3 3 3 3 3 n n i 1 1 1 1 1 1 2 2 2
Laingsburg n i n 1 1 1 3 3 3 3 3 3 2 2 2 3 3 3 3 3 3 n i n 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 n n n 3 3 3 3 3 3 3 3 3
Langeberg h h h 1 1 1 1 1 1 1 1 2 1 1 1 1 1 1 3 2 2 h h h 1 1 1 1 1 1 2 2 2 1 1 1 3 2 2 h h h 3 1 1 1 1 1 1 1 1
Matzikama n n n 1 1 1 3 3 3 2 1 2 1 3 1 3 3 3 3 3 3 n n n 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 n h n 3 1 1 2 2 2 3 3 3
Mossel Bay h h h 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 3 1 1 h n h 2 1 1 1 1 1 2 2 2 1 1 2 3 1 1 n n n 1 1 1 1 1 1 1 1 1
Overstrand h h h 1 1 1 2 1 1 1 1 1 1 1 1 2 1 2 2 2 2 i h h 3 1 1 3 1 1 3 2 1 1 1 3 2 2 2 n h n 1 1 1 1 1 1 1 1 1
Prince Albert h h h 1 1 1 1 1 1 1 1 2 3 3 3 2 2 2 3 3 3 h h h 1 1 1 1 1 1 3 3 3 3 3 3 3 3 3 h h h 2 2 2 3 3 3 3 3 3
Saldanha Bay h h h 1 1 1 2 2 2 2 3 1 2 2 2 2 3 1 3 3 3 h h h 1 3 2 3 3 2 2 3 2 2 3 2 2 2 2 n h n 2 3 2 2 2 2 2 2 2
Stellenbosch h i i 1 3 1 1 3 3 1 3 1 1 3 3 3 3 3 3 3 3 h i h 1 3 2 3 2 3 2 3 3 2 3 3 3 3 3 n n n 2 2 2 1 1 1 1 1 1
Swartland n h h 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 1 1 i h i 2 1 2 1 1 1 2 1 1 1 1 2 2 1 1 n n n 1 1 1 1 1 1 1 1 1
Theewaterskloof h h n 1 1 1 1 2 2 1 1 1 2 1 2 1 1 1 3 3 3 i h h 3 1 1 2 1 1 3 1 1 1 1 3 3 1 1 h h h 1 1 1 1 1 1 1 1 1
Witzenberg n i i 1 1 1 3 3 3 1 1 2 3 2 2 2 1 1 1 1 1 n i i 3 3 2 3 3 2 3 3 3 2 2 3 2 1 2 n i i 0 1 1 1 3 3 1 3 3
Municipal Entities
Cape Town International Convention Centre n n n 1 1 1 1 1 2 1 1 1 1 1 1 1 1 1 1 1 1 h i h 1 2 1 1 1 1 1 1 1 1 1 1 1 1 1 n n n 1 1 1 1 1 1 1 1 1
Knysna Economic Development Agency n n n 1 3 1 1 3 2 1 3 1 1 3 1 3 3 3 3 3 3 n n n 1 3 1 1 3 1 2 3 3 2 3 2 3 3 3 n n n 2 2 2 2 2 2 2 2 2
Page 1 of 1
11 Apr 2013 12:36 PM

ANNEXURE 3: Auditee’ audit opinions for the past five years
Number Auditee Audit outcome 2011-12 Audit outcome 2010-11 Audit outcome 2009-10 Audit outcome 2008-09 Audit outcome 2007-08
Metropolitan Municipalities
1 City of Cape Town Financially unqualified with findings Financially unqualified with findings Financially unqualified with no findings Financially unqualified with findings New consolidation
District Municipalities
2 Cape Winelands District Financially unqualified with findings Financially unqualified with findings Financially unqualified with findings Financially unqualified with findings Financially unqualified with findings
3 Central Karoo District Financially unqualified with findings Financially unqualified with findings Financially unqualified with findings Financially unqualified with findings Financially unqualified with findings
4 Eden District Financially unqualified with findings Financially unqualified with findings Financially unqualified with findings Financially unqualified with findings Financially unqualified with findings
5 Overberg District Financially unqualified with findings Qualified Financially unqualified with findings Financially unqualified with findings Financially unqualified with findings
6 West Coast District Financially unqualified with no findings Financially unqualified with no findings Financially unqualified with findings Financially unqualified with findings Financially unqualified with findings
Local Municipalities
7 Beaufort West Financially unqualified with findings Financially unqualified with findings Financially unqualified with findings Financially unqualified with findings Financially unqualified with findings
8 Berg River Qualified Financially unqualified with findings Financially unqualified with findings Financially unqualified with findings Disclaimer
9 Bitou Financially unqualified with findings Financially unqualified with findings Financially unqualified with findings Financially unqualified with findings Financially unqualified with findings
10 Breede Valley Financially unqualified with findings Financially unqualified with findings Financially unqualified with findings Financially unqualified with findings Financially unqualified with findings
11 Cape Agulhas Financially unqualified with findings Financially unqualified with findings Financially unqualified with findings Financially unqualified with findings Financially unqualified with findings
12 Cederberg Audit not finalised at legislated date Financially unqualified with findings Qualified Disclaimer Qualified
13 Drakenstein Financially unqualified with findings Financially unqualified with findings Financially unqualified with findings Financially unqualified with findings Financially unqualified with findings
14 George Financially unqualified with no findings Financially unqualified with findings Adverse Qualified Qualified
15 Hessequa Financially unqualified with findings Financially unqualified with findings Financially unqualified with findings Financially unqualified with findings Qualified
16 Kannaland Audit not finalised at legislated date Disclaimer Adverse Disclaimer Disclaimer
17 Knysna Financially unqualified with findings Financially unqualified with findings Financially unqualified with findings New consolidation New consolidation
18 Laingsburg Financially unqualified with findings Qualified Qualified Financially unqualified with findings Financially unqualified with findings
19 Langeberg Financially unqualified with no findings Financially unqualified with findings Financially unqualified with findings Financially unqualified with findings Financially unqualified with findings
20 Matzikama Financially unqualified with findings Financially unqualified with findings Financially unqualified with findings Financially unqualified with findings Financially unqualified with findings
21 Mossel Bay Financially unqualified with no findings Financially unqualified with findings Financially unqualified with findings Financially unqualified with findings Financially unqualified with findings
22 Oudtshoorn Audit not finalised at legislated date Financially unqualified with findings Qualified Disclaimer Disclaimer
23 Overstrand Financially unqualified with findings Financially unqualified with findings Financially unqualified with findings Financially unqualified with findings Financially unqualified with findings
24 Prince Albert Financially unqualified with findings Qualified Disclaimer Financially unqualified with findings Financially unqualified with findings
25 Saldanha Bay Financially unqualified with findings Financially unqualified with findings Qualified Disclaimer Disclaimer
26 Stellenbosch Financially unqualified with findings Financially unqualified with findings Financially unqualified with findings Financially unqualified with findings Financially unqualified with findings
27 Swartland Financially unqualified with no findings Financially unqualified with no findings Financially unqualified with findings Financially unqualified with findings Financially unqualified with findings
28 Swellendam Audit not finalised at legislated date Disclaimer Disclaimer Disclaimer Financially unqualified with findings
29 Theewaterskloof Financially unqualified with findings Financially unqualified with findings Financially unqualified with findings Financially unqualified with findings Financially unqualified with findings
30 Witzenberg Financially unqualified with findings Financially unqualified with findings Financially unqualified with findings Financially unqualified with findings Financially unqualified with findings
Municipal Entities
31 Cape Town International Convention Centre Financially unqualified with findings Financially unqualified with findings Financially unqualified with no findings Financially unqualified with findings Financially unqualified with findings
32 Knysna Economic Development Agency Financially unqualified with findings Financially unqualified with findings Financially unqualified with findings New municipal entity New municipal entity

PR201/2013
ISBN: 978-0-621-42001-2
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