By Sharonne Adams
In his speech during the opening of parliament last month, President Cyril Ramaphosa made a bold commitment for the national government to support municipalities to fulfil their mandate.
He said: “As national government, we have both a Constitutional responsibility and a clear electoral mandate to assist municipalities in the effective exercise of their powers and functions. We will ensure that the institutional structure and funding model for local government is fit-for-purpose, and that municipalities are financially and operationally sustainable.”
The Auditor-General of South Africa (AGSA) analyses the audit outcomes through general reports for both entities audited under the Municipal Finance Management Act (MFMA) and the Public Finance Management Act (PFMA).
Auditor-General (AG) Tsakani Maluleke will in a few weeks release the AGSA’s general report on how municipalities and local government entities performed in the 2022-23 financial year. We welcome the commitment by the government to prioritise local government and we are committed to use our insights to enable the government to make interventions in critical areas we believe require attention.
We table these reports to the legislature with a direct interest in the audit, namely Parliament, provincial legislatures, or municipal councils. Those charged with oversight – be it municipal councillors, provincial legislators, or national parliamentarians – use these reports to hold the executive (such as mayors, Members of the Executive Council, and Cabinet ministers) accountable for how they used taxpayers’ money during the financial year under review.
These reports not only deal with financial management in the public sector, they are also critical tools that help the citizens to hold their elected representatives accountable.
We strongly believe that citizens are an important part of the accountability ecosystem – where those charged with the governance and administration of our municipalities, for example, are held accountable for how they spend public funds towards the betterment of people’s lives through dependable delivery of crucial services. Those we elect into government have to frequently update citizens on how municipalities are functioning, and these general reports are laden with insights that will enable everyone in the accountability ecosystem to ask pointed questions and have fruitful, developmental discussions with public representatives.
What do our local government audits and reports look at?
As part of the public sector accountability ecosystem, we, at the national audit office, play our part by auditing every municipality and municipal entity in the country to report on the quality of their financial statements and performance reports and compliance with key legislation, as well as comment on the status of internal controls and where there has been any material irregularities.
What is the importance of auditing financial statements annually?
The purpose of the annual audit of the financial statements is to provide the users thereof with an opinion on whether the financial statements fairly present, in all material respects, the key financial information for the reporting period in accordance with the financial reporting framework and applicable legislation.
The audit provides the users with reasonable assurance regarding the degree to which the financial statements are reliable and credible on the basis that the audit procedures performed did not reveal any material errors or omissions in the financial statements. We use the term ‘material misstatement’ to refer to such material errors or omissions.
We report the poor quality of the financial statements we receive in the audit reports of some municipalities and entities as a material finding on compliance, as it also constitutes non-compliance with the MFMA. The finding is only reported for auditees that are subject to this act and if the financial statements we receive for auditing include material misstatements that could have been prevented or detected if the auditee had an effective internal control system. We do not report a finding if the misstatement resulted from an isolated incident or if it relates to the disclosure of unauthorised, irregular or fruitless and wasteful expenditure identified after the financial statements had been submitted.
What does compliance with legislation mean?
We annually audit and report on compliance by auditees with key legislation applicable to financial and performance management and related matters. We focus on, among others, the following areas in our compliance audits, if they apply to the particular auditee:
- the quality of financial statements submitted for auditing
- asset and liability management
- budget management
- expenditure management
- unauthorised, irregular, and fruitless and wasteful expenditure
- effecting consequences
- revenue management
- strategic planning and performance management
- financial statements and annual report
- procurement and contract management (in other words, supply chain management)
- human resource management and compensation
- environmental management
In our audit reports, we report findings that are material enough to be brought to the attention of auditee management, municipal councils, boards of municipal entities as well as oversight bodies, and the public.
What are root causes?
In our reports we go beyond merely highlighting the audit findings made, we also include root causes of identified problems and give recommendations of what needs to be done to remedy these governance lapses.
Root causes are the underlying causes or drivers of audit findings; in other words, the reason why the problem occurred. Addressing the root cause helps to ensure that the actions address the real issue, thus preventing or reducing incidents of recurrence rather than simply providing a one-time or short-term solution.
Our audits include an assessment of the root causes of audit findings, based on the identification of internal controls that have failed to prevent or detect the errors in the financial statements and performance reports or that have led to non-compliance with legislation.
These root causes are confirmed with management and shared in the management report with the municipal managers or chief executive officers and the mayors. We also include the root causes of material findings reported as internal control deficiencies in the audit report.
We believe that citizens will also welcome the commitment for government to make local government a priority.
Our reports (available on our website) are one of the critical resources to gauge how your municipality performs and one of the tools to use to call municipal leadership to account.
* Sharonne Adams is a head of portfolio responsible for audits of Northern Cape, Western Cape and Free State provinces.
** The views expressed do not necessarily reflect the views of IOL or Independent Media.