By Johan Pretorius
The Auditor General has given the Ugu District Municipality’s management a bad report card with an Adverse Finding of the 2017/2018 financial year. This in fact means that Ugu has regressed from a praiseworthy Financially Unqualified opinion with findings in 2015/2016, one step under a Clean Audit, to a qualified opinion in 2016/2017, followed by the Adverse Opinion for 2017/2018, one short of the worst finding, namely a Disclaimed opinion.
Mr. Indhren Perumaul of the AG’s office explained that an Adverse Opinion meant the municipality “had the same challenges as municipalities with qualified opinions, but, in addition , they had so many material misstatements in their financial statements that we disagreed with almost all the amounts and disclosures in the financial statements.”
His overall message was that the audit outcome of the Ugu District Municipality and its entities has regressed as a result of “a failure address the root causes for findings identified in the prior year, and further misstatements identified as a result of weaknesses in controls during the year.'” The root causes could be identified as follows:
*lack of consequence management,
* slow response by management
* slow response by political leadership and
*slow response by oversight.
The risk areas facing the Ugu District Municipality and its entities that should be addressed as a matter of urgency are:
* quality of submitted financial statements,
* quality of submitted performance information
* supply chain management and
* financial health.
The AG mentioned the following reasons as the basis for the Adverse Opinion:
- The municipality did not properly account for infrastructure assets as it did not maintain an effective system of internal control for assets.
- As far as revenue and receivables from exchange transactions were concerned, Ugu did not account for revenue from exchange transactions in accordance with the SA Standards of Generally Recognised Accounting Practice (GRAP), revenue from exchange transactions due to inadequate controls in the billing and estimation process. He was also unable to find sufficient appropriate audit evidence for adjustments to revenue and receivables from exchange transactions.
- Regarding receivables from non-exchange transactions, the municipality recognised items that did not meet the definition of revenue in accordance with GRAP (23).
- Payables from exchange transactions were not recognised in accordance with GRAP (104).
- The AG was unable to find sufficient appropriate audit evidence for VAT payable disclosed in the statement of financial position as the municipality did not maintain accurate and complete records.
- He was unable to obtain sufficient appropriate audit evidence for commitments, as Ugu did not maintain accurate and complete records of the contractual information used to determine commitments.
- The municipality did not have adequate systems and controls to ensure irregular expenditure incurred was recorded correctly.
- The AG was unable to obtain sufficient appropiate audit evidence for water losses, as the municipality did not maintain sufficient audit evidence for the water stock levels.
As far as pre-determined objectives were concerned, the municipality did not maintain adequate records to support the achievement of the indicator to enable reliable reporting on the achievement of targets. Regarding compliance with legislation, the consolidated and separate financial statements submitted for auditing were not prepared in all material aspects in accordance with stipulations of the Municipal Finance Management Act.
Reasonable steps were also not taken to prevent unauthorised expenditure amounting to R243.82 million. Money owed by the municipality was not always paid within 30 days as required by the MFMA. An effective system of internal control for debtors and revenue was not in place, and some of the unauthorised expenditure incurred by the municipality was not investigated to determine whether any person is liable for the expenditure, as the MFMA stipulates. Capital assets were disposed of without the municipality having, in a meeting open to the public, decided on whether the assets were still needed to provide the minimum level of basic municipal services. An effective system of internal control for assets was not in place. There were serious procurement and contract management deficiencies.
The AG stated there were internal control deficiencies because leadership did not exercise effective oversight and monitoring over financial and performance reporting and compliance with legislation. Management did not implement controls to regularly update, validate and reconcile financial and performance records. Consequently, management did not ensure that the consolidated and separate financial statements and the annual performance report were supported by accurate and reliable information.
DA Councillor George Henderson pointed out that his party had been warning the current situation would happen if the municipality did not clean up its act. ‘We have regressed from a closely missed clean audit three years ago to where we are now. It will take a miracle to avoid a disclaimer at the end of this financial year. Ugu just doesn’t have the management ability to get us out of this mess. There is simply no accountability in management”.
The AG’s basis f