IMFO WOMEN IN LOCAL GOVERNMENT SEMINAR

ACHIEVING 2014 CLEAN AUDIT OBJECTIVES

PRESENTED BY: MS E WASSERMANN

CHIEF FINANCIAL OFFICER STEVE TSHWETE LOCAL

MUNICIPALITY

7 MARCH 2014

EMPERORS PALACE, KEMPTON PARK

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PRESENTATION OUTLINE

Root causes why municipalities do not achieve clean audits.

What a clean audit report entails. Elements of a clean audit. Core compliance aspects. General financial management. Other important matters to be considered. Relationship with Auditor-General. STLM approach. Challenges for 2013/2014 financial year. 2

ROOT CAUSES WHY MUNICIPALITIES DO NOT ACHIEVE CLEAN AUDITS

ROOT CAUSES WHY MUNICIPALITIES DO NOT ACHIEVE CLEAN AUDITS

Property Plant and Equipment (GRAP 17). No, or incorrect assessment of impairment and review of useful

lives. Fixed asset register incomplete and not updated. Reconciliations of registers with GL not performed. No supporting documentation to support evidence.

Performance Information and Predetermined Objectives. (74% of auditees) Performance reports not submitted. Usefulness and reliability of reported information. (Performance

indicators not well defined). No supporting documentation to support evidence.

Non-Compliance with Laws and Regulations (94% of auditees) Unauthorised, irregular & fruitless and wasteful expenditure. Submitted financial statements required material adjustments. Non-functional audit committee & internal control.

Property Plant and Equipment (GRAP 17). No, or incorrect assessment of impairment and review of useful

lives. Fixed asset register incomplete and not updated. Reconciliations of registers with GL not performed. No supporting documentation to support evidence.

Performance Information and Predetermined Objectives. (74% of auditees) Performance reports not submitted. Usefulness and reliability of reported information. (Performance

indicators not well defined). No supporting documentation to support evidence.

Non-Compliance with Laws and Regulations (94% of auditees) Unauthorised, irregular & fruitless and wasteful expenditure. Submitted financial statements required material adjustments. Non-functional audit committee & internal control.

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ROOT CAUSES WHY MUNICIPALITIES DO NOT ACHIEVE CLEAN AUDITS

ROOT CAUSES WHY MUNICIPALITIES DO NOT ACHIEVE CLEAN AUDITS

Supply Chain Management General non-compliance to procurement and contract

management. (Bid committees, quotations etc.). Awards made to persons in the service of the state. Uncompetitive bids or unfair procurement processes. Lost procurement documentation. CIBD requirements and Restricted Suppliers Database. Unauthorised, irregular and wasteful expenditure.

Governance Lack of leadership. Internal audit & audit committees. Risk and fraud prevention. Key positions vacant or key officials lacking skills. Lack of proper record keeping.

Supply Chain Management General non-compliance to procurement and contract

management. (Bid committees, quotations etc.). Awards made to persons in the service of the state. Uncompetitive bids or unfair procurement processes. Lost procurement documentation. CIBD requirements and Restricted Suppliers Database. Unauthorised, irregular and wasteful expenditure.

Governance Lack of leadership. Internal audit & audit committees. Risk and fraud prevention. Key positions vacant or key officials lacking skills. Lack of proper record keeping.

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WHAT A CLEAN AUDIT REPORT ENTAILS

WHAT A CLEAN AUDIT REPORT ENTAILS

The municipality must be no material findings in the report on the following matters:

Misstatements in the financial statements.Emphasis of matters.Annual performance report.Compliance with laws and regulations. Internal control. Significant findings from the audit on procurement and contract management.

The municipality must be no material findings in the report on the following matters:

Misstatements in the financial statements.Emphasis of matters.Annual performance report.Compliance with laws and regulations. Internal control. Significant findings from the audit on procurement and contract management.

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ELEMENTS OF A CLEAN AUDIT

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PREPARATION OF FINANCIAL STATEMENTS

Outsourced versus In-House

71% of municipalities were assisted by consultants. Audit outcomes statistics (includes municipal entities).

70 out of 85 - Adverse/Disclaimed 56 out of 71 – Qualified 93 out of 144 - Unqualified with findings 7 out of 17 - Unqualified with no findings

Consultants were able to correct parts of financial statements that had been misstated but were not necessarily able to ensure that auditees progress towards unqualified reports. Disadvantages

Consultants are appointed close to financial year-end – No real impact.

Poor accounting information and record keeping. Un-reconciled registers limit ability to prepare GRAP compliant

statements. Vacancies and capacity of finance staff. 7

PREPARATION OF FINANCIAL STATEMENTS

Prepare financial statements in-house. Benefits:

Build in-house capacity. Responsibility/Ownership rests within the municipality. Better control over balancing and verification of figures

in general ledger with source documents. Informed responses to Auditor-General enquiries. Better understanding of accounting records and

procedures followed. Defend fairness of queries raised. Accurate and timeous response to Auditor-General.

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CORE COMPLIANCE ASPECTSCORE COMPLIANCE ASPECTS

Identify gaps and ensure the following core aspects are in place and functional:

Governance Internal audit and control. Risk assessments including IT risks and fraud prevention. Performance management (reporting & audits). Audit committee. Legislative compliance.

Financial Achieve unqualified report. Proper record keeping and documentation. Reporting and legislative compliance. (MFMA & Supply

Chain) Understand and adhere to accounting standards

framework. (GRAP) Daily and monthly reconciling of transactions.

Identify gaps and ensure the following core aspects are in place and functional:

Governance Internal audit and control. Risk assessments including IT risks and fraud prevention. Performance management (reporting & audits). Audit committee. Legislative compliance.

Financial Achieve unqualified report. Proper record keeping and documentation. Reporting and legislative compliance. (MFMA & Supply

Chain) Understand and adhere to accounting standards

framework. (GRAP) Daily and monthly reconciling of transactions.

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GENERAL FINANCIAL MANAGEMENT

GENERAL FINANCIAL MANAGEMENT

Daily, monthly & year-end procedures. Ensure all registers and / or suspense accounts

are cleared and balanced monthly for example debtors, creditors, bank reconciliation, stores etc.

Commence immediately with audit action plan to rectify findings raised during past audits.

At least four months before financial year end prepare financial year-end procedures.

Benefits: Immediately detect if monthly accounts are not

balanced and correct before next month end. It allows sufficient time to properly review general ledger

with account balances. Bring team together to understand roles and

responsibilities for financial year-end closure.

Daily, monthly & year-end procedures. Ensure all registers and / or suspense accounts

are cleared and balanced monthly for example debtors, creditors, bank reconciliation, stores etc.

Commence immediately with audit action plan to rectify findings raised during past audits.

At least four months before financial year end prepare financial year-end procedures.

Benefits: Immediately detect if monthly accounts are not

balanced and correct before next month end. It allows sufficient time to properly review general ledger

with account balances. Bring team together to understand roles and

responsibilities for financial year-end closure. 10

OTHER IMPORTANT MATTERSOTHER IMPORTANT MATTERS

Gap analysis for new accounting standards. Based on the results, prepare an action plan to implement.

Capacitate responsible officials who are involved in implementing accounting standards.

Ensure each official understands their duties and responsibilities.

Understand and apply the policies and procedures especially SCM.

Proper segregation of duties. Share best practises with colleagues. Commitment of every official to diligently perform their

duties from the lowest to highest level.

Gap analysis for new accounting standards. Based on the results, prepare an action plan to implement.

Capacitate responsible officials who are involved in implementing accounting standards.

Ensure each official understands their duties and responsibilities.

Understand and apply the policies and procedures especially SCM.

Proper segregation of duties. Share best practises with colleagues. Commitment of every official to diligently perform their

duties from the lowest to highest level.

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RELATIONSHIP WITH AUDITOR-GENERAL

RELATIONSHIP WITH AUDITOR-GENERAL

Know the Auditor-General and team. Make sure there is a good and positive working

relationship. Listen and adhere to the audit requirements. Establish clear communication lines. Designate an official to be available during the whole

audit process. Respond to informal queries quickly and efficiently. Provide information as requested and if not available

inform AG accordingly. Have a open office approach and assist as far as

possible.

Know the Auditor-General and team. Make sure there is a good and positive working

relationship. Listen and adhere to the audit requirements. Establish clear communication lines. Designate an official to be available during the whole

audit process. Respond to informal queries quickly and efficiently. Provide information as requested and if not available

inform AG accordingly. Have a open office approach and assist as far as

possible. 12

STLM APPROACHSTLM APPROACH

The municipality has achieved unqualified reports since 2002 with emphasis of matters and other matters.

With each audit report corrective and preventative measures with action plans were implemented to rectify these issues before the next audit.

Eventually everything came together and a clean audit was achieved.

The achievement of a Clean Audit is a continuous process. Get the basics right:

Submit on time. Accuracy of information. No material misstatements. Supporting documentation. Legislation compliance.

The municipality has achieved unqualified reports since 2002 with emphasis of matters and other matters.

With each audit report corrective and preventative measures with action plans were implemented to rectify these issues before the next audit.

Eventually everything came together and a clean audit was achieved.

The achievement of a Clean Audit is a continuous process. Get the basics right:

Submit on time. Accuracy of information. No material misstatements. Supporting documentation. Legislation compliance. 13

CHALLENGES FOR 2013/14 AUDITSCHALLENGES FOR 2013/14 AUDITS

New Standards of GRAP, effective date of 1 April 2013 i.e. applicable to 2013/2014 financial year. GRAP 25 Employee benefits

Corporate governance of information and communication technology (IT) policy framework.

Matters raised in previous audit.

New Standards of GRAP, effective date of 1 April 2013 i.e. applicable to 2013/2014 financial year. GRAP 25 Employee benefits

Corporate governance of information and communication technology (IT) policy framework.

Matters raised in previous audit.

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MUNICIPAL COMMITMENT

There are many faces in the municipality contributing to a clean audit achievement.

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THANK YOU

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