Mogale City Local Municipality | Chapter 6 Auditor General ... · Mogale City Local Municipality | Chapter 6 – Auditor General Audit Findings 329 COMPONENT A: AUDITOR-GENERAL OPINION

Mogale City Local Municipality | Chapter 6 – Auditor General Audit Findings 328

CHAPTER 6 – AUDITOR GENERAL AUDIT FINDINGS

INTRODUCTION

Note: The Constitution S188 (1) (b) states that the functions of the Auditor-General includes the auditing and reporting on the accounts, financial statements and financial management of all municipalities. MSA section 45 states that the results of performance measurement… must be audited annually by the Auditor-General. The audit opinion was issued with matters of emphasis and legislative compliance issues as outlined in the report of the Auditor General of South Africa included in the annual report. No material findings were raised on the usefulness and reliability of the reported performance information for the selected development priorities.

The reported information on selected development priorities was found to be useful and reliable in all material aspects because all misstatements were corrected on the 2015/16 Annual Performance report. Audit Action plans were yet again developed based on the findings raised by AG, these were continuously monitored through the Operation Clean Audit Committee meetings, which take place twice a month. These meetings give the Municipality an opportunity to monitor the progress that has been made on addressing issues raised by the Auditor-General as well as preparation for the upcoming audit process. The Municipality has regressed from unqualified audit status (clean audit) to unqualified audit opinion. Due to current audit status as per AG report, the municipality is in the process of engaging with various stakeholders to ensure that compliance and regulations are adhered to in order to change the current status.

T6.0.1


COMPONENT A: AUDITOR-GENERAL OPINION OF FINANCIAL STATEMENTS 2014/15

6.1 AUDITOR GENERAL REPORT 2014/15

Auditor-General Report on Financial Performance 2014/15

Audit Report Status*: Unqualified with matters of emphasis

Non-Compliance Issues Remedial Action Taken

Significant uncertainties

With reference to note 48 to the financial

statements, the municipality is the defendant

in various court cases. The ultimate outcome

of the matter cannot presently be determined

and no provision for any liability that may

result has been made in the financial

statements.

Restatement of corresponding figures

As disclosed in note 44 to the financial

statements, the corresponding figures for

3ue 2014 have been restated as a result of

errors discovered in the financial statements

of the Mogale City Local Municipality during

the year ended 30 June 2015.

The municipality’s contingency liabil ity has

reduced from the previous financial year.

The legal services has done a due dil igence

in all l it igious matters against the

municipality wherein we identif ied the

causes of contingency matters, with

possible solutions. The due dil igence will be

conducted annually to identify areas of lack

with the view of putting systems in place to

ensure that contingency matters are further

reduced.

Prior adjustments are allowed hence there is

GRAP 03 which state how prior year adjustments

must be disclosed in the financial statements.

Reinstatement of corresponding figures when

compared to June 2013 figures was reduced by

51%. However Management will analyze all

accounts to determine the root cause of all errors

on the financial statement and put control

measures to eliminate recurrence.


Material losses


statements, the municipality incurred material

losses amounting to R78 069 967 (2013-14:

R77 539 902) as a result of water distr ibution

losses, which represents 42% (2013-14: 44%)

of the total water purchased. the total

technical losses of water amounted to R27

963 152 (2013-14: R26 361 109). non-

technical losses amounted to R50 106 815

(2013-14: R51 178 793) and are mainly due

to faulty prepaid meters, straight pipes in

some areas and leakages.

The infrastructure department can attr ibute

the 2% reduction on water losses to the

successful implementation of water

conservation demand management strategy

which is a multi-pronged approach

implemented as and when the budget is

made available.

The strategy includes the installation of

prepaid water meters, replacement of

asbestos pipes and ageing infrastructure.

The installation of the telemetry system to

remotely monitor the water reservoirs and

pump stations. The vigorous maintenance of

the water infrastructure using the internal

maintenance teams. The biggest challenge

is the extent of the budget required both to

replace the ageing infrastructure and to

continue with planned maintenance.

The department will appoint additional

competent staff in vacant posit ions to assist

with day to day activit ies that are aimed at

addressing the losses.

The department will continue to lobby

various government institutions such as the

Department of Water and Sanitation and

COGTA for additional funding that can help

accelerate the interventions to curb losses.


Material impairments


statements, the allowance for impairment of

receivables from non-exchange transactions

amounted to r458 011 880

(2013-14: R343 430 252). The recoverabil ity

of these amounts is doubtful.


statements, the allowance for impairment of

receivables from exchange transactions

amounted to R416 875 219

(2013-14: R445 900 236). The recoverabil ity

of these amounts is doubtful.

The MCLM has appointed eleven debt

collectors to assist with collection, cut offs

and restr iction of services is taking place to

try to collect the debt within 60 days.

Note:*The report status is supplied by the Auditor General and ranges from unqualified (at best); to unqualified with other matters specified; qualified; adverse; and disclaimed (at worse)

T6.1.1

Auditor-General Report on Service Delivery Performance 2014/15

Audit Report Status*: Unqualified with matters of emphasis

Non-Compliance Issues Remedial Action Taken

Non-compliance with respect to submissions to Treasury

To ensure that the SDBIP is submitted timeously (within 10 days)

Adjustments budget and supporting documentation

A schedule has been developed to ensure that the SDBIP and budget adjustment is tabled in council simultaneously.

Material adjustments to the annual performance report

Misstatements have been corrected on the annual performance report and necessary amendments will be made during the SDBIP/Budget adjustments

Note:*The report status is supplied by the Auditor General and ranges from unqualified (at best); to unqualified with other matters specified; qualified; adverse; and disclaimed (at worse)

T6.1.2


AUDITOR GENERAL AUDIT OPINION FOR THE PAST TEN YEARS

Mogale City Local Municipality has obtained an unqualified audit opinion meaning the municipality submitted financial statements that were free from material mis-statements, complied with legislation and no material findings were identified by AG on the usefulness and reliability of the reported performance information during 2014/15 Financial Year. The trends of audit opinion are as follows:

2006/07: Qualified 2007/08: Qualified 2008/09: Unqualified with 5 findings 2009/10: Qualified 2010/11: Qualified 2011/12: Unqualified with 3 findings 2012/13: Unqualified with 3 findings 2013/14: Unqualified with no findings (Clean Audit) 2014/15: Unqualified with no findings (Clean Audit) 2015/16: Unqualified with 1 finding

T6.1.2.1


COMPONENT B: AUDITOR-GENERAL OPINION 2015/16

6.2 AUDITOR GENERAL REPORT 2015/16

AUDITOR-GENERAL REPORT ON FINANCIAL PERFORMANCE 2015/16

Audit Report Status: Unqualif ied with matters of emphasis

Significant uncertainties

With reference to note 48 to the financial

statements, the municipality is the defendant in a

number of legal cases. The ultimate outcome of

these matters cannot presently be determined, and

no provision for any liability that may result has

been made in the financial statements. If the

outcome of these matters change and a liability is

raised, these matters can have a material impact

on the financial sustainability of the municipality.

Restatement of corresponding figures

As disclosed in note 44 to the financial statements,

the corresponding figures for 30

June 2016 have been restated as a result of errors

discovered in the financial statements of Mogale

City Local Municipality at, and for the year ended

30 June 2016.

Material losses

As disclosed in note 41 to the financial statements,

the municipality incurred material losses amounting

to R89 381 666.21 (2014-15: R78 069 966.66) as a

The Municipality has conducted due diligence on

both Labour and Civil Cases with the aim of

reducing the Contingency liabilities. The Labour

Contingency was reduced significantly after the due

diligence was completed and measures implanted

as per the recommendations thereof.

Currently, due diligence is being conducted on Civil

matters and will report on same once finalized.

Prior adjustments are allowed hence there is GRAP

03 which state how prior year adjustments must be

disclosed in the financial statements.

Replacement of pipelines- replacement of the ageing infrastructure will increase the asset value of the


result of water distribution losses, which represents

34.80% (2014-15: 27%) of the total water

purchased. The losses are mainly due to

deterioration of water reticulation system, burst

pipes and unauthorised consumption.

Material impairments

As disclosed in note 3 and 4 to the financial

statements, material impairment amounting to

R467 849 424 (2014-15: R422 623 8790) and

R537 966 434 (2014-15: R458 419 390) were

incurred as a result of irrecoverable consumer

debtors.

Procurement and contract management

Goods and services with a transaction value of

more than R200 000 were not procured through a

competitive bidding process, as required by Supply

Chain Management (SCM) Regulation 19(a).

Certain deviations were approved by the

accounting officer even though it was not

impractical to invite competitive bids, in

contravention of SCM regulation 36(1).

Municipality and will increase potential revenue generated since a huge portion of water is lost through the system at the present moment

Installation of smart meters in industries and private developments- be well monitored in order to ensure that there is proper accounting for water and accurate billing as a result.

Installation of prepaid water meters- eliminate straight connections were done and these contributed to water losses.

Pressure Management Programme- Water lost due to high pressure contributes to NRW and this is difficult to quantify and must be monitored on a continuous basis.

Leak detection and repair programme- the Water and Sanitation Division will conducts regular leak detection routines. Will expose and repair the leaks

Resealing Reservoirs

Install water pipelines in rural areas

The municipality continues to conduct cut off and

restriction of services is taking place to try to collect

the debt within 60 days. The debt aging 90 days

and above gets handed over to debt collectors.

Ensure that supply chain management team gives

advice, monitor and enforce the compliance in

accordance with legislations that govern supply

chain management procedures and processes.


Contracts were awarded to bidders based on points

given for criteria that differed from those stipulated

in the original invitation for bidding and quotations,

in contravention of SCM regulations 21(b) and

28(1)(a) and the Preferential Procurement

Regulations.

Contracts were awarded to providers whose tax

matters had not been declared by the South African

Revenue Service to be in order, as required by

SCM regulation 43.

Contracts and quotations were awarded to bidders

based on preference points that were not allocated

and calculated in accordance with the requirements

of the Preferential Procurement Policy Framework

Act, 2000 (Act no. 5 of 2000)(PPPF), and its

regulations.

Contracts and quotations were awarded to bidders

that did not score the highest points in the

evaluation process, as required by section 2(1)(f) of

Preferential Procurement Policy Framework Act.

T6.2.1

AUDITOR-GENERAL REPORT ON SERVICE DELIVERY PERFORMANCE 2015/16

* This table will be completed prior to the publication of the Annual report but following the receipt of the Auditor- General

Report on Service Delivery Performance Year 0 ** Inclusion of "Status" depends on nature of AG's remarks on Performance Data

T6.2.2








T6.2.3

COMMENTS ON AUDITOR-GENERAL’S OPINION 2015/16:

The report of the Auditor General of South Africa is noted and welcomed. The municipality would

earnestly consider the recommendations of the AG. Relevant action plans will be developed to ensure

that the findings as raised in this financial year are addressed and will not be raised in the following

financial year. This will also ensure that in terms of the performance, the municipality does improve.

T6.2.4

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Mogale City Local Municipality | Chapter 6 Auditor General ... · Mogale City Local Municipality | Chapter 6 – Auditor General Audit Findings 329 COMPONENT A: AUDITOR-GENERAL OPINION