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REPORT OF THE AUDITOR-GENERAL TO THE WESTERN CAPE PROVINCIAL PARLIAMENT AND COUNCIL ON THE CITY OF GAPE TOWN, REPORT ON THE FINANGIAL STATEMENTS Introduction 41. | have aualted the accompanying financial statements ofthe Cy of Cape Town, which ‘comprise the statement of financial position as at 20 June 201 1, and the statement of financial performance, statement of changes in net assets, cash flow siatement and statement of companson of eudget and actual amounts for the year then ended, and @ summary of significant accounting policies and offer explanatory information as set out an pages 1310 63, Accounting officers reeponelbilty for the financial atatements 2. The accounting effcer is responsible forthe preparation and ‘air presentation of these: financial statemenis in accordance with South Mfican Standards of Generally Recognised ‘Aczaunling Praciios (SA Standards of GRAP) and in the manna required by the Local ‘Government: Municipal Finance Manegement Act, 2003 (Act No. 56 of 2003) and the Division of Revenue Act of South Arica, 2010 (Aci No. 1 of 2010) (DoRA), and for such internal cantvol as managemert determines necessary fo enable the preparation of financial Statements that are free from material misstatement, whether due to fraud or erry. Ausitorgeneral’s responsibility 3, AS required by section 188 of the Constitution of the Republic of South Afica, 1898 and section 4 ofthe Public Aust Act of South Africa, 2004 (Act No, 25 of 2004) (PAA), my responsibilty ta express an opinion on these fareial statements based on my sui 4. Leonducted my audit in secordance with International Standards on Ausiting and General ‘notice 1771 of 2010, issued in Government Gazette 33572 of 15 December 2070. Those standards recuiro that | comply with ethical requirements snd plan and perform he sucitto Dbiain reasonable assurance that the financial statements are free from material misstatement 8. An audit involves pertomning procedures to obtain audit evidence for the amounts and disclostres in the financial staternonts. The ptocaduros solacted depand en tho auciior’s Judgement, including the assessment of the tisks of material misstatement of te nancial Statements, sxhether due to fraud or error. In making those risk assessments, the auditor ‘considers internal control relevant to the en’ preparation and fair resentation of tne ‘nancial statements in order to design aud procedures thal are appropriate in the circumstances, bul nat for the purpose of expressing an oginion on the effectiveness of the elit’ inemal conta, n aucit also Includes evaluating the appropriateness of accounting policies used ad the reasonableness of accounting estimates made oy management, at ‘well a8 evaluating the overall presentation of the financial statements, 6. Thelieve tat the audit evidence | have obtained is suffcient and appropriate to provide = basis for my audit opinion. Opinion 7. Inmy opinion. the financial statements present fay, in all material rospecss, the financial position of the City af Cape Town a6 at 30 June 2074, andite nancial performance, cash flows end comparisons of budget ard actual amounts forthe year then ended in accordance with SA Standards of GRAP and in the manner required by the MFMA and DoRA. Emphasis of matters 8. [drat attention to the matters below. My opinion is not modified in eespect of these matters: Significant uncertainties 8. Asdisclosad in note 47.2 to the financial statements, the City of Cape Town is rly to contrscual claims by its suppliers that 2 subject to mediation. The maxirnum potertial labiity is estimated at 401,34 milion, The ultimate outcome of thase claims could net be delermined at year-end Rostatemont of corresponding figuras 10. As disclosed in notes 41 1, 42.1.2, 43. and 45 tothe financial statements, the corresponding figures for 30 June 2010 have been restated ac a resuil of errs discovered during 2017 in the irancial sistements ofthe City of Cage Town et. and forthe year ended 30 June 2010, Material losses ‘11. As disclosed in rote 41.3 to the financial statements, the City of Cape Town autfered 2 significant water loss witha value of R506,54 milion during the year under review. This ‘was incurred as a result of metering ineficiencies, burs! pipes and other leakages. 412. As disclosed in note 41.3 lo the financial statements, the City of Cape Town sulfered a significant electricity loss oF RE89.25 million. This was a8 a resus of technical losses caused by the nature of olectricity and tno way itis conducted, via lines. statusiconcition and age of the network, weather conditions, load on the system, as well as non-technical losses such as theft and vandism, Material underependiing of the budget 18. As disclosed in the statement of comparison cf budget and actual amounts. the City of Gape Town has materially uncerspent i's capital budge! to the amount of RAB7.97 milion (23.3%). As @ consequence, the municjalty has not fully achieved the service delivery objectives, as detailed in the statement of comparison of budget and actual amounts for the year ended 30 June 2011 ‘Additional matters 14. I drave attention ta he matters bslow. My opinion is net mediied in respect of these rales: ‘Material inconsistencies in other information Ineluced In the annual report 48, The craft annual repatt has not yel been received far review, As a result, thas nol been reviewed for any incons-stences withthe financial statements. The draft annual report, 25 ‘well 28 the final printers proct of the annul report will bs reviewed and any material Ineonelatencias then ident fied wil be cammuntested fo management. Should the inconsistencies not be corrected, it may result in the mater being included in the audit report Unaudited supplementary schedules 46. "The supplementary information eat aut on pages 64 to 71 doss nol form art ofthe finar statements and is presented as adeitional informalion. I have nat suited these schedules: ‘af, eecordingly, Ida not express an opinion thereon, REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS 47. In aocordance with the PAA and in terms of General notice 1747 of 2010, issued in Goverment Gazette $3872 of 15 Decombor 2010, | include below my findings on the ‘annual perormanes rapor! and material non-compliance with ltws and reguiaions ‘applfoable to the municipal Predetermined objectives 18, No material ndings relating ‘0 the prascntation, usefulness snd reliability of performance information remained unresolved Compliance with laws and regulation Expenditure management 4G. The sooounting affcor did not iake all reasonable steps to prevent iegular expenditure, 28 disclosed in note 41.1, a8 required by section 62(1}6) af the MFMA, Procurement and contract mangement 20, Awards were made lo providers wa are persons in service ofthe municipality andor ‘whose directors/principal shareholders are persons in service of the municipality in Contravertion of SCM regulation 44, Furtnermare, tho providers faled to deciara that they wore in tne verve of the municipality, as required by SCM regulation 13(). 21. Awards were made to providere wo sre persons in service of cther state institutions or ‘nhose directors/pnncipal sharsholders are persane in service of ethor state inition in ‘ontravention of the requirements of SCM regulation 44, Furthermore, the providers files {0 declare that they wars inthe service ofthe state, 2s required by SCM regulation 13(c). 22, Persons in sorvioe of he municipslty whe had a private 0; business inteest in contacts ‘awarded by the municipalty failed to cisclose such interest, as required by the code of ‘conduct for staff members issued in terms of tie Municipal Systems et, 2000 (Ack No, 32 cof 2000), 23, Awards were made to providers that ara listed on the Nalioral Treasury's database 3s persone atohbited ftom doing business withthe pubic secior in contravention of SCM reguiation 38(1)(¢). INTERNAL CONTROL, 24, In accordance wilh the PAA and in terms of Gencral notice 1415 of 2040, iseusd in Government Gavstte 29872 of 15 Dacember 2010, | considered internal coniol relevant to ‘my audi, but not forthe purpose of expressing an opinion on the eviectiveness of internal Contol, The matters reporiad are limtedto the significant deficiencies thal resuited in the findings en compliance with laws and regulations included in this report Financial management 25, ‘The standard declaration of interest forms were not requested as part ofthe standard bid decuinentaton for awards of goods below R200 000 ancior suppers and employses aid ‘not complete the declaration of interest forms correct, which ‘ed to the SCM unit not being ‘bie to entity confit of interests in a timely manner. The SCM unit has no! implemented ‘Sdequate controls fo ensure that awards are not made to persons employed by the unicipalty or to pravant awards to prohibited suppliers. OTHER REPORTS Investigations in progress 26. SCOPA has requested 2 number of investigations during the year undar roview. At the date ‘of this repert these investigations had not aeen finalised. Tnese include: {an investgstion into alleged inragular expenditure relating o ossertis| user allowancss pelo certain council employees 4+ an inveatgation into grant in-sid allacation project «an imvestigetion into imegular expenditure resulting rom contravertions of the municipal SCM ragulalions, 28 reported in the 2003-10 finance! statements “+ an investigation into tne truitees and wasteful expenditure regarding grants enc ‘subsidies, as repotad in the 2009-10 financial stalements «+ an investigation ino tne ruitlass ana wasteful experditure regacding tne 2010 FIFA ‘Werld Cup costs, a8 reported in the 2002-10 financial statements + aninvestigation into 2 request to wile of amounts deemed to be irrscoversble from the SICOGAIKAPA special praject conducted in 2008. the Mfuleni early childhood development Investigations completed during the financial year 27. As reported in paragraah 13 ofthe priar year aust rocort, allegations against a senior ffficial for renting munejpal property ta private ciizens in hie personal capacily as well as allegations of iregularties related tothe allocation and distribution of houses in cerisin Suburbs. were investigated, The vestigation was finalised during the yar under review and conéused thet the offic was involved in uneuthoriesd or improper use of te propery. There wore ineuffcient feole ta support a charge of fraud against the oficial, The ficial subsequently lel the employ of the City of Cape Town before disciplinary action ‘could be taker 28. During the yesr a nuriser of investigations relating to the contravention of SCM policies and procedures were conducted. The investgetions were inifated based on allagations, rade by ranagaman, a8 well a through tha fraud hotline. The nature of cases Invest gated included poss'ble collusion by service providers and devistons from palcies in the extension or granting of contracts and tenders. Instances of valid deviations er files ‘ond wasieiul expenciture were adequately cisclosed inthe financial slatements Agreed upon procedure engagement 20, The city requested an agreed upon provadure engagement to be performed an the housing accrediation systems and controls. The engagerrent is due to commence in December Dott fraierm Benatod ap Town so November 2041 aul