Fourth disclaimer in a row

Audit stamp
Audit stamp

The Auditor General is again not happy with Emalahleni Local Municipality’s finances.
For the fourth consecutive year the municipality received a disclaimer of opinion from the financial watchdog.

“The provisional audit outcome is a big disappointment. We believe that this outcome does not reflect the progress made and improvement achieved and it contained various sections which management and the Council Audit Committee disagree with. This has prompted the lodging of an appeal with the National Office of the Auditor General. The outcome of this appeal is awaited and may see some changes to the report,” said Mr Theo van Vuuren Municipal Manager.

This report is in various aspects a carbon copy of the one received last year.

“The leadership of the municipality did not monitor the implementation of corrective measures, and did not ensure that processes were in place and that controls were adhered to by all staff members,” the Auditor General slashed the municipality.

Again the Auditor General gave the municipality a hiding over irregular, fruitless and wasteful expenditure.

“I was unable to obtain sufficient appropriate audit evidence that the municipality had properly disclosed all irregular expenditure, as established internal controls were not effective to identify all irregular expenditure,” the Auditor General said.

Because of non-effective internal controls he was unable to determine whether irregular expenditure amounting to R47 253 997 disclosed to the financial statements was fairly stated.
He also left a huge question mark behind the R140 726 533 mentioned under fruitless and wasteful expenditure as again he could not find appropriate audit evidence that the municipality had properly disclosed all irregular expenditure.

“Eskom’s interest on outstanding debt is all classified as fruitless and wasteful expenditure. Should that be excluded a huge improvement on this item would have been noticeable,” said Van Vuuren.

The local municipality is on the electricity giant’s list to be cut in May. In the past four years the municipality has undertaken several projects to try and curb electricity and water losses. But to no avail, even with stringent fines in place.

It was found that electricity distribution losses represent 37.24% of the total electricity purchased. It is definitely lower than the 54.8% in the 2013/2014 financial year.
Water distribution losses, on the other hand, are higher at 56.11% compared to the 38.41% in 2013/2014.
The Auditor General found that there still is no improvement in the municipality’s record keeping system.
The procurement and contract management was put under the magnifying glass and it was found that goods and services with a transaction value below R200 00 were procured without obtaining the required price quotations. Goods and services with a transaction value above R200 000 were procured without inviting competitive bids.
The Auditor General said neither the revenue management nor the assets management’s system of internal control was in place.

Property rates are also questioned.
The municipality has to charge a rateable rate based on the market value of property within boundaries. However the municipality could not provide the Auditor General with documents supporting the valuation performed.
The municipality could not even give the Auditor General supporting documents relating to consumer deposits.

“I was unable to obtain sufficient appropriate audit evidence for consumer deposits amounting to R81 386 358.”
Mr Koos Venter, Democratic Alliance Caucus leader said three of the four disclaimers from the Auditor General are under the leadership of Van Vuuren, “The intervention by government to place Emalahleni under administration has failed dismally.”

Venter said the report is similar to the previous three disclaimers and it is obvious that the administration is unable or unwilling to rectify the issues as reported by the Auditor General.

“According to the Auditor General’s report the municipal manager has not fulfilled his responsibility of preparing and fairly presenting the financial statements in accordance with the South African Standards of Generally Recognised Accounting Practice,” Venter said.

According to Venter the report dated on November 30 last year has been kept away from council and the public.

“At the council meeting on February 25 I asked why the report has not been discussed at a council meeting and was told by the mayor that they are still in talks with the Auditor General. The report is out and will not change,” Venter said.

“The audit report, although handed to management on November 30, only may be released together with the annual report during the council meeting that was held on January 25. That is a standard requirement and experienced councillors do know this. This report was never hidden away and I find this statement surprising and loaded. At this meeting Council took a decision to refer the Audit report to the Municipal Accounts Committee to review and assist in remedial actions, before submitting to council again by end March,” Van Vuuren defended.
“The second point which I find surprising is that the analysis of the report and reaching of conclusions, are preceded now by a council member’s statement in the press. The matter is under review by Council and subject to Council processes and all councillors are part of that process,” he said.

He said to apportion blame and to come to conclusions may be premature.

“It’s interesting that specific allegations are made. For record, the administration as referred to was successful to address the issues of stabilising the municipality and to get service delivery functional again. This has been acknowledged at higher levels than from where this criticism is now coming. The administration also started just before year end, therefore the first two year’s audit results were already been a fete complete. The basic for a disclaimer and the preparation of financial statements are all imbedded in the Finance Directorate and in this area the municipality has been struggling with the attraction and retention of key staff. The past three years saw three different chief financial officers and even now, an acting chief financial officer.”

“However, the provisional audit outcome is and was a big disappointment to Management and Council. We believe that this outcome does not reflect the progress made and improvement achieved and it contained various sections which Management and the Council Audit Committee disagree with. This has prompted the lodging of an appeal with the National Office of the AG. The outcome of this appeal is awaited and may see some changes to the report. This was also shared with Council at both the January and February Council meetings,” Van Vuuren said.

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According to the man holding the reins it is a known fact that the municipality still is struggling to correct many issues, such as prior year balances, historic mistakes, poor record keeping, incorrect data and more.

He said significant progress based on remedial plans has been made but problems which developed over the past eight years are not quick to resolve.

“The municipality has shown signs of improvement in managing the finances of the Council in the financial year 2014/15, however it was not easy to ensure that all matters that were raised by the Auditor General could be cleared within a short space of time. We also experienced major setbacks during the audit processes by a high turn over of critical staff and critical vacancies. To assist in this we established an internal audit function, which has become fully operational and is assisting in identifying issues to be corrected. Personally I am pleased with progress made although it was too late to change the current Auditor General opinion substantially.
“In the news article number of points was raised and in this respect as accounting officer I am confident that the municipality has improved. One area where huge improvements occurred is financial administration.
The comment on assets and valuations should be placed in context. Whilst in the previous financial year assets were disclaimed due to valuation and existence however the only area the Auditor General was not yet satisfied with was the completeness test, a huge improvement.
“If one can go back to previous financial years will realise that the municipality was also struggling with managing employee cost, value added tax and unauthorised expenditure which was part of the audit report for number of years however in the 2014/15 financial year the Auditor General Report did not report on any material deviation on employee cost. Despite highlighting irregular expenditure, it is advisable to look at the contents of this finding. It is evident that some municipal processes, followed for years, were now identified as incorrect by the Auditor General. These have subsequently been corrected.”

Van Vuuren admits there are areas of concern and in this regard Council has mandated the Executive Mayor and the accounting officer to conduct investigation of this non-compliance and internal process has commenced already to commission investigation of the irregular expenditure.

Eskom interest on outstanding debt is all classified as fruitless and wasteful expenditure. Should that be excluded a huge improvement on this item would have been noticeable. Areas Van Vuuren is still concerned with are the billing system, the continuous high water losses and the supply chain operations. These will be areas for special correction in the year ahead.

He concluded by pointing out that after Council has fully reviewed the report as well as the outcome of the lodged dispute is received, it will be more appropriate to elaborate. He further reminded the reader that the results of the municipal administration cannot only be measured by one component. The audit is very important but requires also some understanding and one needs to be careful to make statements in context.

“The main objective of a municipality as outlined by the Constitution is service delivery and despite many setbacks, the situation now can not be compared with what it was three years ago. Huge strides have been made and the foundation has been laid for both internal and external changes and this include the improvement in not only service delivery, urban development but also audit outcomes,” he wrapped up.</blockquote

  AUTHOR
Zita Goldswain
Assistant Editor

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