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Mbhashe Municipality Audit Report For the year ended 30 June 2016 Report of the auditor-general fo the Eastern Cape Provincial Legislature and the council on Mbhashe Local Municipality Report on the financial statemenis Introduction 1. Ihave audited the financial statements of the Mahashe Local Munleipaliy set cut on pages to ..., which comprise the statement of financial position as al 30 June 2016. the statement of financial performance, staleren! of changes inet assets, and cash flow slalement and the slalemen! of comparison of budget informetion with actual information for he yaar then anded, 4s well as the natas. comprising a summary of signifcaril accounting policies and other ‘explanatory information. Accounting Officer's responsibility for the financial staternents 2. The sccaunting oticer is responsible forthe preparation and fair presentation of those financial stataments in accordance with South African Standards of Generally Recognised ‘Accounting Pracice (SA standards sf GRAP} and the requirements of the Municipal Finance Management Act of South Affea, 2003 (Act No. 86 of 2003) [MFMA) and the Division of Revenue Actof South Africa, 2015 {Act No.1 of 2015) (DeRA\, and for such internal cortel as the ‘accounting ofliver determines is necessary zo erable the preparation of financial slaterets that ate free ftom materiel misststemeat, whether due te frau or ear Auditor-general's responsibility 3. My responsibilty is to express sn opinion an these financial statemente based on my auclt | ‘vonducted my audit in accordance with International Standards an Ausiting. Those standards equi thal | comply with ethicsl requirements, and pian and perform the audit te ebtain reasonable assurance aboul whather the financial statements are free fram malerial nisstalement 4. An audit involves performing procedures to obtain audit ovidence abaul the: amounts anc isclosures in the financial statemonts. Tha procedures selected depend on the auditor's judgement, incluging the essessment ofthe risks of matorial misstatement ofthe financi statements, whether duc fa fraud or eror. In making these risk assessments, the auditor ‘considers interna} control relevant to the municipaliy’s preparation and fair presentation ™ of the financial statements in order to design sudit proceduras at are gppropriate in the creaimstances, but not for the purpose of expressing an opinion on the effectivonass af the ‘municipalty’s intemal control, An audit also includes evaluating the appropriateness of ‘accounting policies used and the reasonableness of accounting estimates made by management, a5 well as evaluating the avarall prazenlalion of the financial statements, { believe thatthe audit evidence | have obteined is sufficient and appropriate to provide a basis for my audit opirion, Opinion 6. In my opinion, the fnancal statements present fit inal material respects, the fnancal position ofthe Mbhaste Local Municipaty ag at 30 June 2018 andi arcial performance .3n6 cash flaws forthe year then onded, in accordance with SA Standards of GRAP and Ihe roquivoments of the MFMA and DoRA. Emphasis of matters 7. draw attention tothe matters below. My opinions not mediied in respect of these matters. Restatement of comesponding figures 8. As disclosed in note £3 to he nancial slalemanis, the corresponsing ques fr 30 June 2015 have baen resialed! as a rasull of an ero ciscoverec during 30 June 20'6 inthe financial statements ofthe Mbhashe Local municipslity st, snd forthe yaar ended, 30) Jun 2016, Material impairments 8. As disclosed in nate 24 to the financial staternents, material losses ta tha arneunt of R2.1 milion were incurred as 2 result of 8 write-off of irracoverable trace cebtors. Fruitless and wasteful exnencilure 10. As cisclosed in note 30 ta the francial stalaments, frailass and wasteful expenditure balance ‘of R8.3 million has been accumulating forthe past thvee years. No investigators were ‘conducted by the municipaty lmegular expenditure 111. As disclosed in note 31 to the financial slatements, regular expenditure amounting to R794 million was incurred by the munieipally curing the year ended 30 June 2016. This is primarly pp resull of nov-compllance wilh required procurement processes, 42. | draw altantion to the matter below. My opinion 's not modified in respect ofthis matier. Unaudited disclosure notes 18. In terms of scctan 125(2\6) of the MFMIA the municipality is required lo disclese pariieulars of non-compliance with the MFMA. This disslesure requirement did nel form part of the audit of ‘the financiel sletements and accorcingly ldo nol express an opinion thereon, Report on other legal and regulatory requirements 14, In accordance withthe Public Audit Ael of South Africa, 2004 (Act No. 25 of 2004) and the ‘general notice issued in terms thereof, | have a responsibilty to report findings on the reported performance infermation against predetermined objectives of selected development priorities presented in he annual performance report. compliance with legslaton ang internal control The abjoctive of my tests was fe identity reportable tindings as deseribad under each subheading but not to gether evidence to exprose assurance on trese matters. Accordingly, | do iol express an opinion or conclusion on these matters, Predetermined objectives 15. I performed procedures to obtain evidenoe shou the usefulness and reliailty of tre reportec parformance information ofthe following selected development prioriy presented in the annual performance report af the municipal for the year ended 30 June 2016 + KPA2: Service dalivery and Infrastructure services on pages xto x 16.1 evaluated the usefulness of the reported performance information fo determine whether it was ented in aceardance with the National Treasury's annual reporting principles and whether the reported parformance was consistent with tho planned developmen! alates. {further performed tests to determine whether indicators and targets wore well defined, vera, specific, measuratle, time bound and relevant, as cequired by the National Treasury's Fremewort for managing programme performance information (FMPPI} 17. Lassessed the reliability of the reported performance infarmation te determine whether it was valid, accurate and complete Service Dellvery and Infrastructure Services 48. | did not identity ery material fedings an the usetuiness and reliability ofthe veported performance inlarmalion far the fllowing development priority + KPA2: Service delivery and Infrastructure services Additional matter 49. Athough Lidentified no material findings on the usefulness and rolabilty of the repioried performance information forse selected development privity. I draw attention tothe following matter Adjusiment of material misslalements 20. lideniiiad meterial misstatements in ine annual perfomance reper submitted for auditing ‘These material misslalements were an the racarted aerformance information of KPA2-Service delivery and infrastructure servicas. As management suosequently carected the misstatements, | did no! Idenify any materia findings on the usefulness and rela reported performance information. Compliance with legislation 21. performed procedures to obtain evidenea that the municipality had comple legislation regarding financial matters, financial management and other related malters. My material findings on compliance with specie mattors in key legistaiion, ae set out in the general roca issued in terms of the PAA, arc as follows: Procurement and Contract Management 22. The contract performance and monitoring measures and methods were insufficient fo ensure effective contract management, a8 required by seclian 116(23c} of the MFMA, 23, The performance of contractors ar praviders was not monitored on a monthly basis, as recuited by section 116{2)ib) of the MFWIA. 24, Construction contracts were awarded to contractors Inal did not quslfyFerthe contract, in contravention of CIDB regulations 17 and 25(7A\. Expenditure Management 125, Reasonable steps ware nol taken to prevent unauthorised, iragular and fnutless and wasteful expenditure, as required by secton 62(1)(d) ef the MRA. Revenue Management 26. Interest was not charges on all APRA, unt in rears, as required by section 64(2}(9) of the Assel Management 27. The municipaly did act establish an investment policy thst was sdopted by council, ws tequired oy section 13(2} of the MFMA and municigal ingestment regulation 31)(2} 32) Human Resource Management 28. The municipality did nal develop and adapt appropriate sysloms (policies} and procedures to monitor, measure and eveluale performance of stall in contrevertion of seation &7(a} of the Municipal Systerns 29. dab cescritions ware not established forall posts in which spgeintments were rade in the ‘current year, in contravention of secon €6{1}(b) of Municipal Systerms Act Annual Financial Statements and Annual Report 0. The financial statements suiomited for auditing were nol prepared in all male‘al respects in scrardance with the requirements of section 122 ef the MFMA. Malarial misstatements of tisclesure items ideniiied by the auditors inthe submitted financial statement ware Subsequertly correcied and tne suppering records wers provided subsequently, resulting in the financial statements receiving an ungualiiad audit opinion. Consequence Management 31, Unauthorised expenditure incurred by the municipality was not investigated to determine if any person is lable for ine expenditure, as required by section 2(2}aj of the Munieipel Finance Management Act 82. irregular ane rulless and wasteful expenditure incurred by the municipaiily was not investigated :0 determine if any person is liable forthe expenditure, as required by section 22(2\b} of the Municipal Finance Manarement Act Municinal budget and regorting regulations 78(1). Strategie Planning 93, The annual performance report fo year under review di nol include: +a comperisan ofthe perlarmance with te previous financial year, and measures taken to improve performance, as required by section 48 [1)(2), (b} and fc) of the MSA. Internal control 34, | considered intemal contrel relevant to my aucitof the financial statements, the sinus performance report and compliance with legisiation, The mallars reporiad below are limited to “ne sigaticant internsl control deficiencies thal resulted in the bas's for opinion. tne findings on the annual performance report and the findings en compliance with legislation included in this reper leadership 25. Oumership of responsibilly and liviag the financial dsciplinas ware nol rolled out ‘© all levels of staf to ensure sound frrancial adminisiralion, There was a lack of oversight aver the processes to ensure document management systems were in place fo susp ine achiaverant of pre determined abjecives end inacequale slruclures to ensure compliance with applicable tvs ‘and regulations Financial and performance management 96. There wos a lack of understanding and roviow ofthe disclosures made inthe financlal slalements and municipal cid net heve an effective records management system in place 1c reliably eceount forthe reporting on pradelemined ebjectives In addition there was inadequate cally anc monthly reviews performed to ensure thal compliance witn laws and regulations was achieved Governance 37, There was not always an effective oversigh! review over financial information, compliance with lee end regulations and raporting on predelermined cojeclives, as findings in these arcas ‘were identted during the year. - Mueuiler -Genesat pee ‘cnr 2018