PRESENTATION OUTLINE

1. PROGRESS ON THE IMPLEMENTATION OF OPERATION CLEAN AUDIT OUTCOME BY MUNICIPALITIES IN THE MPUMALANGA PROVINCE By David Mahlobo HOD: COGTA 13 NOVEMBER 2012

2. PRESENTATION OUTLINE Audit Outcomes for 2010/11 Root causes requiring the most attention Support from Province MFMA Integrated Support Plan

3. BACKGROUND Mpumalanga comprises of: 3 district municipalities 18 local municipalities Capacity: High: 6 Medium 6 Low: 9 The audits of 19 municipalities who had submitted financial statements by 31 August 2011 were completed within the legislated time frame of three months from the receipt of the financial statements.

4. BACKGROUND Two municipalities were not able to meet the legislative requirement of timely submission. The audit of one of these municipalities was completed in time for inclusion in the analysis of this general report. The audit of the other municipality had not been finalised as at 31 January 2012, which is the cut-off date set by the AGSA for inclusion of audit outcomes in this general report. Thaba Chweu Municipality only submitted its financial statements for auditing on 24 February 2012. The financial statements were not ready for submission on 31 August 2011, as the municipality had problems with its financial system and was unable to extract the required information to draft the financial statements.

5. BACKGROUND In 2009/10 Municipal Financial Year, three municipalities achieved clean audits out of the seven municipalities in the country In 2010/11, Fourmunicipalities received clean audits (Ehlanzeni District, Gert Sibande District, Steve Tshwete, and Victor Khanye) out of the 11 in the country ( 4 Mpumalanga, 4 KZN and 3 in other provinces.) An action plan was developed with performance indicators, planned outputs and specific activities to operationalize the implementation action plans of individual municipalities. Municipalities were assisted on supply chain management whereby business process maps were developed and circulated to all municipalities for consideration. Areas covered under the business process maps were, demand management, acquisition: quotations, acquisition: bid specifications, tender procedures: bid evaluation and adjudication, acquisition contract and finalisation of contracts. Treasury provided training on compilation of financial statements COGTA and Treasury deployed staff to municipalities to assist with compilation of Financial Statements. Thaba Chweu, Mkhondo, Lekwa, Thembisile Hani, Dr Pixley ka Isaka Seme and Chief Albert Luthul) 16 Municipalities approved anti corruption strategies. (Thembisile Hani, Victor Khanye, Dr JS Moroka, UMjindi and Emalahleni did not have approved Anti corruption Strategies)

6. AUDIT OUTCOMES COMPARISONS, NKANGALA DISTRICT MUNICIPALITIES

7. AUDIT OUTCOMES COMPARISONS, GERT SIBANDE DISTRICT MUNICIPALITIES

8. AUDIT OUTCOMES COMPARISONS, EHLANZENI DISTRICT MUNICIPALITIES

9. AUDIT OUTCOMES: 2010/11

10. Audit outcomes

11. AUDIT OUTCOMES: 2010/11 #Assessments and verifications of progress on 2010/11 audit outcomes indicate that there are some key areas that still need attention

12. ROOT CAUSES REQUIRING ATTENTION Leadership Key vacant positions were not filled timeously with competent persons. HR management was ineffective and did not ensure that adequate and sufficiently skilled personnel were appointed and that their performance was regularly monitored. There was a lack of on-going monitoring and supervision by management to enable the assessment of the effectiveness of internal control. The leadership did not adequately evaluate whether management had implemented effective internal controls by gaining an understanding of how management members had met their responsibilities.

13. ROOT CAUSES REQUIRING ATTENTION Financial and performance management Controls over daily and monthly processing as well as the reconciliation of transactions were inadequate. This resulted in errors not being prevented before the preparation of the financial statements. Regular, accurate and complete financial reports supported and evidenced by reliable information were not prepared. Financial information submitted with the financial statements for auditing was not adequately reviewed for accuracy and completeness. There was a lack of commitment from staff in the finance sections. Record keeping and retrieval of documents were inadequate.

14. ROOT CAUSES REQUIRING ATTENTION • Governance • Risk assessments were not properly performed. • All MPAC’s have been established and training was provided . The functionality of these committees remains a challenge and follow up training sessions is scheduled to assist. • Management failed to implement the recommendations of the internal audit units. • Audit plans were not implemented and monitored by the audit committee and management. • Audit committee effectiveness was impaired by non-functioning internal audit units. • Filling of vacancies • Vacancies of CFO’s in • Dr JS Moroka • Thaba Chweu • Emalahleni • Dipaleseng • Chief Albert Luthuli • Emakhazeni

15. SUPPORT FROM PROVINCE (1) • COGTA and Provincial Treasury jointly assisted all municipalities in the province to develop Remedial Action Plans. • The remedial Action Plans were developed with the aim to ensure that issues as raised by the Auditor General are dealt with. • The progress by municipalities were monitored and a Support Framework was developed to assist municipalities with issues in relation to Operation Clean Audit. • Financial experts were deployed by National Treasury to all municipalities who received qualifications and disclaimers. • Provincial Treasury and COGTA conducted two rounds of verification teams were deployed to obtain detailed information on remedial actions from each municipality that received disclaimers or qualified audit opinion. • MEC’s for COGTA and Finance also visited identified municipalities during the verification process in ascertain the readiness of municipalities to compile and submit Financial Statements by the required date. Interaction with Council, Administration and Consultants on readiness to submit complete set of AFS to the Auditor-General

16. PROVINCIAL INTERVENTIONS MUNIMEC of 14 September 2012 resolved that municipalities must prioritize the following matters and provide progress reports to the next meeting: Suitable skilled personnel must be appointed in the finance sections Audit Committee recommendations must be included in action plans and progress of implementation monitored Policies and procedures must be developed and implemented (including business process charts) Controls over daily processing and reconciling of transactions must be implemented Monthly financial statements with notes must be prepared and reviewed by management Compliance checklists must be implemented Misstatements identified during the audit must be investigated and necessary controls implemented Internal audit and risk management units must be fully capacitated

17. PROVINCIAL INTERVENTIONS An integrated action plan framework was developed to address all MFMA key dates and to incorporate activities that COGTA and PT are responsible for on a daily basis. (Herewith attached is the detailed action) The action plan framework was completed by the integrated teams consisting of COGTA, District Municipalities and PT This will ensure that the fragmented approach to the local sphere of government is addressed and that all resources are focused on key areas during a financial year

18. PROVINCIAL INTERVENTIONS Human Resource management Weaknesses: Performance management Competencies of key personnel Acting positions Root causes: Compliance with laws and regulations not reviewed Not all staff members ‘ performance was monitored on a regular basis Performance management agreements were not signed by management HR policies and procedures are inadequate to ensure that only skilled and competent personnel were recruited

19. PROVINCIAL INTERVENTIONS Information Technology Weaknesses: IT Governance Security Management User account management IT service continuity Root causes: Lack of implementation of appropriate key controls Inadequate risk identification and management Lack of adequate and competent personnel Inadequate oversight responsibility by management Lack of management awareness and understanding of IT matters IT not being recognized as of strategic importance Lack of funding Increased dependence on key individuals and developers

20. PROVINCIAL INTERVENTIONS Material misstatements Weaknesses: Non-current assets Current assets Current liabilities Revenue Expenditure Unauthorized, irregular and fruitless and wasteful expenditure Root causes: Key vacant positions Lack of ongoing monitoring and supervision Inadequate controls over daily and monthly processing and reconciliation of transactions Lack of regular, accurate and complete financial reports Lack of commitment Inadequate record keeping Inadequate risk assessment Management failed to implement internal audit recommendations Ineffective audit committees

21. PROVINCIAL INTERVENTIONS Municipalities that received clean audits: (Steve Tshwete, Victor Khanye, Ehlanzeni and Gert Sibande) No municipality to be allowed to regress. ( all the four municipalities have committed and targets to maintain this clean audit status) The Executive led by the Executive Mayor to be hands on and provide leadership The Administration led by the Municipal Manager to implement all actions plans emanating from the results of internal audit or interim audit. The Municipal Council through the Municipal Public Accounts Committee and Audit Committee to strengthen its oversight To replicate the good practice from these municipalities as part of knowledge sharing- twinning's with other municipalities to assist in turnaround to be encouraged.

22. PROVINCIAL INTERVENTIONS Municipalities that received clean audits: (Steve Tshwete, Victor Khanye, Ehlanzeni and Gert Sibande) No municipality to be allowed to regress. ( all the four municipalities have committed and targets to maintain this clean audit status) The Executive led by the Executive Mayor to be hands on and provide leadership The Administration led by the Municipal Manager to implement all actions plans emanating from the results of internal audit or interim audit. The Municipal Council through the Municipal Public Accounts Committee and Audit Committee to strengthen its oversight To replicate the good practice from these municipalities as part of knowledge sharing- twinning's with other municipalities to assist in turnaround to be encouraged.

23. PROVINCIAL INTERVENTIONS Municipalities that received unqualified audit opinions: No municipality to be allowed to regress. ( all the seven municipalities have committed and targets to obtain clean audit status) The Executive led by the Executive Mayor to be hands on and provide leadership The Administration led by the Municipal Manager be directed to compile Interim Financial Statements. The internal audit unit to perform review on Interim Financial Statements and pre-audit review on Annual Financial Statements. The administration is further directed to implement and report on all actions plans emanating from the results of internal audit or interim audit and the AGs management letter. The Municipal Council through the Municipal Public Accounts Committee and Audit Committee to strengthen its oversight To approach those municipalities that have obtained clean audit outcomes as part of a learning network to learn the good practice and craft municipal specific turnaround plans.

24. PROVINCIAL INTERVENTIONS Municipalities that received qualified and disclaimed audit opinions: No municipality to be allowed to regress or maintain the current status quo. ( all the ten municipalities have committed and targets to improve). These municipalities are Thaba Chweu (no opinion); Mkhondo, Chief Albert Luthuli; Dr. JS Moroka, UMjindi; Lekwa, Dr. Pixley Ka Isaka Seme; Dipaliseng; Emalahleni and Thembisile Hani Local Municipalities) The Executive led by the Executive Mayor to be hands on and provide decisive leadership The Administration led by the Municipal Manager be directed to compile Interim Financial Statements. The internal audit unit to perform review on Interim Financial Statements and pre-audit review on Annual Financial Statements.

25. PROVINCIAL INTERVENTIONS Municipalities that received qualified and disclaimed audit opinions: The administration is further directed to implement and report on all actions plans emanating from the results of internal audit or interim audit and the AGs management letter. All the municipalities to urgently attend to record keeping in preparation of the interim audits and the final The Municipal Council through the Municipal Public Accounts Committee and Audit Committee to strengthen its oversight To approach those municipalities that have obtained clean audit outcomes as part of a learning network to learn the good practice and craft municipal specific turnaround plans. Provincial Treasury, COGTA and the District Municipalities to dispatch a technical support teams during this period to provide support.

26. PROVINCIAL INTERVENTIONS During this period BEFORE AND DURING THE AUDIT PROCESS it is expected that: No official takes leave during the audit period Consequences must be determined where supporting documents are not available for audit purposes No official receives a performance bonus where he/she is responsible for an area where a qualification / disclaimer was received Interim Financial Statements are compiled and audited by the internal audit unit Annual Financial Statements are submitted on time (without material mis-statements)

27. PROVINCIAL INTERVENTIONS During this period BEFORE AND DURING THE AUDIT PROCESS it is expected that: All municipalities fill key vacancies, including the risk officers and internal auditors Municipalities ensure involvement by Provincial Treasury when appointing Audit Committee members Municipalities utilise the databases of policies, procedures and guidelines issued by Provincial Treasury Municipalities implement job descriptions for each post and Personal Development plans for each official Municipal officials are identified to act as liaison and ensure transfer of skills by consultants Municipalities develop and implement a recruitment and retention plan

28. KEY TIMELINES Submission of AFS: 31 August (Emalahleni LM submitted after 31 August and Mkhondo LM still has not submitted by 17 September) Submission of AG reports: 30 November COGTA and PT will assist during audit process: 1 September – 30 November Address issues that require intervention: 1 September – 31 October Compile comprehensive remedial action plans with workgroups based on audit reports and key areas for focus: 15 December – 15 January Monitor implementation and provide support where needed: 16 January – 30 June

29. PROGRESS MADE BY MUNICIPALITIES During our deliberations with the Chief Financial Officers from the 9 Municipalities, the following progress was reported in terms of having GRAP compliant asset registers: DR PIXLEY KA ISAKA SEME The Municipality has already appointed a service provider who will ensure that a GRAP compliant asset register is made available. LEKWA A consultant has been appointed to verify all assets and to develop a GRAP compliant asset register. EMALAHLENI The Municipality does not have a credible asset register that is GRAP compliant. The Municipality is in a process to develop a GRAP compliant asset register.

30. PROGRESS MADE BY MUNICIPALITIES DIPALESENGThe process of asset verification has already begun. A service provider was appointed and commenced to compile a fully GRAP compliant asset register. The Excel spread sheet version of the asset Register will be imported into the Munsoft Asset Module and be presented to the Auditor-General during the audit process.DR JS MOROKAThe Municipality has appointed a service provider to develop a GRAP compliant asset register. The valuation of assets commence on the 11th of July 2012. THEMBISILE HANIThe movable asset register compiled by the service provider was not GRAP compliant. Another service provider is currently busy with the infrastructure assets. MKHONDOA service provider was appointed to prepare the Annual Financial Statements and the scope extension to cover GRAP 17 assets register. The service provider has already started with the asset verification and they indicated that this was be completed.

31. PROGRESS MADE BY MUNICIPALITIES UMJINDIThe Municipality has appointed a service provider to compile a GRAP compliant asset register and according to information received, the register was made available to the Municipality. CHIEF ALBERT LUTHULIThe Municipality has appointed a service provider to compile a GRAP compliant asset register. The Provincial Treasury was informed that the service provider completed the exercise. CHALLENGES AND INTERVENTIONSThe late appointment of service providers may hinder progress in finalizing the Annual Financial Statements. CONCLUSIONThe report covers information gathered during the teams from Provincial Treasury and Department of Co-operative Governance and Traditional Affairs’ visits to municipalities and further follow up meetings were held in July 2012 with municipalities to assess progress. Provincial Treasury officials provided support where municipalities experienced challenges with service providers.It must be noted that according to information received, municipalities are making progress towards ensuring that GRAP compliant registers will be available before finalization of the Annual Financial Statements.

32. SPECIFIC INTERVENTIONS MUNIMEC of 14 September 2012 resolved that municipalities must prioritise the following matters and provide progress reports to the next meeting: Suitable skilled personnel must be appointed in the finance sections Audit Committee recommendations must be included in action plans and progress of implementation monitored Policies and procedures must be developed and implemented (including business process charts) Controls over daily processing and reconciling of transactions must be implemented Monthly financial statements with notes must be prepared and reviewed by management Compliance checklists must be implemented Misstatements identified during the audit must be investigated and necessary controls implemented Internal audit and risk management units must be fully capacitated

33. SUPPORT FROM PROVINCE (1) • Following the submission of the financial statements COGTA and Finance developed an MFMA Integrated Support Plan for municipalities up to October 2013 • The plan aims to address all areas of financial management and governance in the municipalities. • Three task teams were established to assist with the roll out of the integrated support plan.

34. INTEGRATED SUPPORT PLAN (2)

35. INTEGRATED SUPPORT PLAN (3)

36. INTEGRATED SUPPORT PLAN (4)

37. INTEGRATED SUPPORT PLAN (5)

38. INTEGRATED SUPPORT PLAN (6)

39. INTEGRATED SUPPORT PLAN (7)

40. Thank you