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Tha Accounting Officer Pixley Ka Some Municipality Private Bay x1012 DE AAR 7000 Date: 30 Novernber 2015 Roforancar: 21382REG14-16NC Dear Sir Report of the Auditor-General on the financial statements and other legal and ragulatory requirements of Pixley Ka Seme district municipallly for the year ended 20 June 2015 1. The above-mentioned repo ofthe Auditor-General Is submillev herewith in terme of section 21(1) af the Public Aucit Act of South Alica read in conjunction with section 788 a Ui Consttution of the Ropuble of South Afrea section 121/3} of the Municinal Finance Management Acl ol South Africa 2. We have nol yel received the other information thal wil te included inthe annual roport with the audited financial statements and have thus not heen abe to estabish whether there are {any inconsistencies between this information and tha audited fnarcial statements and the ‘ported performance against pre-detormincd objectives. You are requester’ to supply this nfarinion as soon a8 gossiole. Once this information is received it wil bo road and should any inconsistencies ba idkntfied hese will 2e communicatee lo you and you will Be requosted to make (ne necessary corrections. Shau'd the corrections not be made we wil amend and reissue the aut repor. 3. In terms of section 121(3) of the MENA you are requited fa Inclide the audit report in the municipality's annual report ta be tabled, 4. Until the annual rapar is fabled as required by section 127(2) of te MFA the aust report Is not a public document snd should thorafere be treated as confidential. 5. Prior ta printing or copying the annual vepore which wil inelude the audit report you are required ta do he folowing: + Sulomitthe final printer's proof ofthe annual report to the relevant senior manager of the ‘Auditor-General a South irica for verification of the auuibreisle references in the audlt report and for confimation thatthe financial sislements and other information ava those ‘documents that have boon read and audited, Special care shoud be ten withthe page references In your reper, since an incorreetreferenea could have audit implications. “+The signature Aueltor-Cenera in the handuriting of the auctor authorised ta sign the aut razor the end of the hart copy ol the audit report shauld be scanned in when preparing to print the reparl. This signature, ag well as the place and cate of signing anc {the Auditor-General of Sout Ace's logo, should appear st the end! ofthe repar., 2s in tha hard copy that is provided to you. The official logo wil be mada vailable to you in cloctrone format 8. Ploase notify the undersigned Senior Manager wall in advance ofthe date on which the fennual report containing this audt regent ‘wl be lable, 7. Your cooperation ia ensure tht ll these requirements are met would ba much appreciated. Kindly acknowledge revsipt otis letter. Yours sincerely Agia Senior Manager NCBU: Senzosenkosi Mthambu Enguines. Neaberinhlo Nkos! Teleahone: 1058} 836 8800 Report of the auditor-general to the Northern Cape provincial legislature and the council on Pixley Ka Seme District Municipality Report on the financial statements Introduction 41. have audited the financial statements ofthe Pivlay Ka Seme District Municipality sel ‘out an pages... to... which camprise the staternent of financial postian aa at 30 Juris 2015, ths statement of financial nerfermance, statement of cvanges in nel ‘assets, cash fow statsment and budget statement for Ihe year then ended, as well 28 the noles, comprising a summary of signticant accounting policies ane other explanatory intornaton, Accounting officer's responsibility for the financial statements 2. The accounting officer is responsible forthe progatation and fair presentation of these financial statements in accordance wth South Arican Standard of Generally Recognised Accounting Practice (SA standards of GRAP) ane tho requirements el the Municipal Finarce Management Act of South Aiea, 2003 (Act No. 3 cf 2003) (MFR) and the Dvision of Revenue Act of South Afi, 2014 (Aci No. 10 of 2074) {DoRA), and far such internal control as the sevounling officer ceterminas is Necessary to erabla Ie preperation of financial stataments thal are fee from material misstatement, whether sue to Freud ar error. Auditor-general's responsibility 3. My responsiblity isto express an apinion on these financial statemonts based an my audi | conducted my auditin accordance with International Standards on Auclting ‘Those standards require that | comply with ethical eequrements, end plan and perform the aucit to obiain reasonable aesurance about whether the financial stalements ara ree from material misstatomnent. 4, An Budi imso¥ves performing procedures ta obtain audit evidence abou the amounts tnd disclosures inthe financial statements, The procedures selected depend on the auditors judgement, incuding the assessment ofthe risks of material misstatement ofthe financial statemanls, whather due to frau of error. In making thase risk assessments, the auditor considers inlornal contol relevant fo the municigalily's Preparation and fair presentation of the financial slalersants in order to design aut provscures that are appropriata in te circumstances, out net forthe purpose of ‘expressing an opinion on the effectiveness of tha municipality's intemal control, An ut aiso includes evalueting the appropriatenass of accauning policies used and the reasonableness of accounting estimates mace by managemenl, as wel as ‘ovaluatng the overall presentation of ino finanesal statements, 5. [believe that tho aud evidence | have obtained is sulficient ard appropriate to provide a basis for my audit opinion. Opinion 6. Inmy opinion, the financial statoments presen fairy, in all material respects, the financial postion of the Pxiey Ke Seme District Wunicpalty a8 al 30 June 2015 end is financial performance and cash flows for the year then ended, in accordance wih SA stancards of GRAP anc the requirements ofthe MEMA ard DORA. Emphasis of matters 7. [raw allentin to the matters below. My ozinlon is nol modified in respect of these mates, Restatement of corresponding figures 4. As dissiosed in note 32 to the financial slstements, the corresponding figures for 40 June 20/4 have been restated as a result of an error d geovered during 2015 in the financial statements of the muricipaliy at, ane forthe year ended, 30 June 2044. Material impairments 8. As disclosed in note 2 tothe financial statements, the munscipaliy had racaivab es from exchenge transactions totaling R2 032 779. A provision of Rt 427 690 was created for itacoverable debi relating to shared services and bonuses paid incorrectly, regular expenditure 10. Iregular espenditure incurred during 2074 -18 was disclosed as R174 410 (2014 R 23 092 404) in rote 28.3 tothe financial statements. This Imegular expenditure ‘must stil be investigated and reported to councl. The regular expendlure was stil availing authorisation orto be writen of Going Concer 11. The statement of nancial performance indicates thal Play Ka Seme District Municipality incurred a net loss of RS 904 47 during the year ended 30 June 2015 and. a8 of that date, the municipally's currert labilties exceeded its total assats by Ré 809 327. These indicate the existence of a mataral uncertainty that may caat significant doust or the munipaliy’s abilty to operate as a going eancem, Additional matters 12. | draw attention fo the mattere bslow. My opinion is not modified in respec! af these valle, Unaudited supplementary schedules 48. The supplementary information set out in appandlx A ta H dows nal form part of the financial statemen's and is presented as additonal information, We have nat aucited these schedules and accordingly. Wa da net expracs an opinion thereon, Unaudited disclosure notes “4. In terms of section 1252) (6) of he MFM the munieipaliy is required fo diaclase Particulars of non-complance with the kIFRIA. This disclosure requirernent cid not form partof the audi cl the fancial statements and sccerdingly 20 nal express an pinion thereen, Report on other legal and regulatory requirements 16. In accordance with the Public Aust Act of South Mica, 2004 (Act No, 25 of 2004) (PAA) and the general nate issued in terms thereat, | have a rosponsitily fo report findings on the reported performance information against precetermined objectives for selected objaciives presented in the annuel performance reporl, compliance with lagisation anc intemal conitol. The opjective of my tests was to iceniy raporiatle Fincings ws descrited under each subheading, but nat a galher evidence to express jssurance on Iisa matiers. Accordingly. I do rot express an opinion ar conclusion on these matters Predetermined objectives 16. 1am unable to resort on the usefulness and reliably ofthe performance information, 2s the annual performance repart of the muricipality was nol grapared as required by section 46 of the Municizal Systems Act and section 121(3)(} of tna MFMA Compliance with lealsiation 17. performed procedures to obtain evidence thal tho municipality had camped with applicable legislation regarding financial matter, fhancial management and other related matters. My material findings on campliance with speatic matters in key legislation, as set out inthe general notice issue¢ in lerms of he PAA, are as laws Strategic planning and performance management 18. The adopted integrated cevelopment plan (IDP) did nol releet and identify the key performancs indicators and targets and financial slan, as requirad ty sections 26 and 47 of the MSA as well a Municipal planning ard perfomance management regulalian 2(1) and 2(33{3-c) 19. The service delivery and budget implementation plan (SDBIP) for implementing the ‘municipalty’s delivery of muncipal services and annual budget did not indicate service delivery targets and porformence incioaters for aach querter 2a require! by section 1 af the MEMA, 20. The municipality dié rot conduct its affa’s ina manner which was consistent with is IDP, a8 recuired by section 36 of the MSA, secon 21(2\a) ofthe MFMA and Municipal planning ane performance management regulation 6. 21, Tha performance management systern did not provide for policies and procadres to ‘ake steps of imsravement where gerlormance targets wore not met, a8 required by section 41 (1](d) of Ihe MSA, 22, Measurable serfarmance targets for the financial year were nol set inthe IDP, for each of the key perfomance indicators and wilh regard to each of Une development priorties or ob)eclves, 25 requirad oy section 41(1 bj of the MSA and the Municipal planning and performance managemont regulations 12(1j and 12(2Ke} 23. The annual zerformance agreements forthe municipal manager and ll senior managers are not inked to the measurab’e performance objectives aparaved with the busget and to the service delivery budget implementation plan as required in terms of scaion 52(1}(cKil) af he MFMA and seetion $7 1}(0} of the MSA. Financial statements, performance and annul reports 24, The annual performance report was nel prepared forthe fnencial period under review, a5 required by section 46 af tha MSA, 25, The financial siaiements submitted for suditing were not prepared in all material respects in accordance with the requirements of section 122 ef the Municinal Finenoe Management Act. Material misstatemonis of current assets, lasities, revenus, expendilura and cisclosure items identified by the auditors in the SUB mill! financial slalement were subsequently corrociad and the supaarling records Were provided subsequently, resuting n the linancial statements receiving an unqualified audit opinion, Audit committees 28, The audit committee did not review the runicipalty’s performance management system and make recommendations io the caunel, as required by Municipal planning and performance management regulation 14/4}(aii, 27. The audit commillse cid not submit, at east twiee during the financial year, an auclt roport on the review ofthe performance management systam tothe council. as Fequired by Municipal plenning and perfornans managernent regulation 14¢2\(a}i, 26. The sult commitige dc not meet at less four times a yoar, 86 required by section 4186(4Xb) of the MFA. Procurement and contract management 28. Goods and services with Iransaction valua of below R200 000 ware procured witneut oblaining the required price quotations as required by SCM regulation *7(a) Reel 30. Goods and services of a vansaction value above R200 000 were procured without invting compailive bids, a8 required by SCM raguaten 184g) 31. The preterence point syslem was not applied in all procurement of goods and services above R30 000 as required by section Zia) of the Preferantial Procurement Policy Framework Act ang SCM regulation 26(1 Kal 32, Sulicient appropriate auuil evidence could not be cblainad that contracts anc {quotations were only awarded Wo providers whese tax matters have been declared by the South African Revenue Service lo be in order 28 required by SCM rogillation 43 Human resource management and compensation 39. Sulfician! approprate aualt evidence could not be abtained that job descriptions were ‘established forall posts in which appointments were mage in the current year, a8 required by section 68! 1),b) of MSA. £24, Sufficient snprop‘ate ausit ovidence vould not be obtained that appointments were ‘mace in posts af a maneger directly accaurable te municipal manage Uial were advertised, as required by section 86(3) of MBA, 35, Sufficient appropriate audit evidenca could not be obtained that newly appointed managers directly accountable to municipal manager's submitted proof of erevious temaloymant prior to appointment as per the requiramens af regulation 4 of GNR. 805, 3. Sufficient appropnate auuil ewdence could not be ubtained that the senior managers sismissee for financial misconduct in & prev.ous pasion and re-appointod before lhe ‘expiry of 10 years in contravention af saction S7A of he MFMA, 37. An approved staff establishment wes notin place, as required by section 66(1 Ka) of the MSA. 48. The competencies al the senior managers were no! assessed ina timely manner in ‘der to icenty and address gaps in competency levels as required by Municipal Regulations on Winimum Gomaciency Leve's 18 ‘38. Senior managers did no sign performance agreements, as required by saction 572K) of the Municipal Systems Act Expenditure management 40. An adequate management, accounting and information system was natin placa Which recognised expenditure when il was incurred, 25 requirad by section 65{2\b) of the MENA. 441. Reasonable steps were not taken Io prevert imegular exoeniture and rutless and westefu expenditure. es required by section 62(7}id) of he MEMA, Revenue management 42, An adequate management, accounting and infamation system which accounts for ‘avenue and debtors was nicl in slace, as required by section 64(2\} ofthe MERA Consequence management 43, regular and Frufless and wastetul expenditure incurred by te muncipalty was not investigated to determine it any person is lable for the expendliure, as required by seviion $2(2)(a}) ofthe MEM, intemal control 44.1 considered intemal cant! relevent to my aucit ofthe financial statements, annlal Performance repait and comaliance with legislation, The matlers reported below 3° limited to the signitican! internal control deficiencies that resuited in opinion, the findings on the anaval performance and the sings an compliance with legislation included inthis repert, Leadership 45, The accounting officer cid not exercise oversight respansibility regarding financial ‘anc performenve reporting and compliance anc related iniernal controls. The leadership di not ansure that there were provassas to ensure reviews are implemented before submission of information a8 material ertors were detected in the financial statements and non-compliance with laws and regulations and internal control deficienzies were noted throughoul the audit process 46. The lack of decisive action to mitigats emerging risks, Inplernent limely conectve ‘essures and address non-perlormance was avident 2y the failure of management ‘o adequalely addrass the external aval findings in timely mannie~ "The mun epalty failed to praperly analyse the control waaknesses and implement appropriate follow Lp actions thal adequetely addressed the ract cause, This resultse nthe autll findings in the prior year report baing recurring in the eurrent year. 47. The leadership di not ensure adherence tp SCM policy a! the municipality, whi ‘esulted in processes not prevenling irregular axpenciture an material none complianos, 48. The municpaliy dd not review and monitor compliance with applicable taws and regulations, Financial and performance management 49, The accounting officer cid not prapare regular, ecourate and complete financial statements that are supcorted and evidenced by reliable information, review and ‘moniter compliance with laws ang regulations, 50. The systems underlying the procurement proceeses at the municioality were inadequate to prevent and cetectiraguler expenditure an contracts entered ino, resulting in ureguiar expenditure that was disclosed in tha acecunting racords of ine Inunicipality: Effecive and apprapriate disciplinary steps ware rt taken against officials who mace and permitted unauthorised, iragular and frulless and wasteful ‘expenditure 51, Tha underlying systems and controls were inadequate to provide rejable and ‘courata evidence to support ihe reporting on predelormined objectives. Senior management did not perforin an adequate review on the aetual perfornanea against reeetermined abjactives repaited. Therefore, na explanations were documented for targets thal were nat achieved Governance 652, The Muniopal Manager of the municipaliy did not ensure thal a financial ard risk unit is establishes. The municipalily cid nol keenty risks rolating to the achievement o financial and performance reporting objectives, Consequently, controle were nat developed to prevent, detect anc correct material misststements in financal reporting ‘and regoring on predetermined objectives. 53. Thare were stil matters of soneam with regards to the reviews conducted by the cuit commitiee. The auditors ientfied issues thal could have been addressed through the audit committer reviews, Pyare Gorse Kimberley 0 November 2015