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REPORT OF THE AUDITOR-GENERAL TO THE EASTERN CAPE PROVINCIAL LEGISLATURE AND THE COUNCIL OF THE JOE GQABI DISTRICT MUNICIPALITY ON JOE GGABI ECONOMIC DEVELOPMENT AGENCY (SOC) LTO REPORT ON THE FINANCIAL STATEMENTS Introduction 1 Thave audited the Gnancial statements of he Joa Gabi Feanomia Revelopment ‘Agency (See) Ltd set out an pages xx to xx, which comprise the statement of financial position as at 80 June 2013, the statement of financial performance, statement of ‘changes in net assets, salement of carpanson af buxigel and actual and the east Haw statement forthe year than ended, and the nolis, comprising a summary of significant ‘accounting policies and alher explanalory information ‘Accounting authority's responsibility for the financial statements 2. The accounting authonty is responsible forthe preparation and far presentation of these financial statements in accordance with South Afican Standards of Generally Recognised Accounting Practices (GRAP) and the requirements of the Municipal Finance Management Act of South Africa, 2003 (Act No, $6 of 2003) (MFMA) and Division of Revenue Act of South Attica, 2013 {Act No. 5 of 2012) (DoRRA), and for such Internal control as the accounting officer determines fs necessary to enable the proparation of nancial statoments thet ero frce from metorial misstatement, whother due to fraud or error ‘Auditor-Generat’s responsibilty 3. My responsibilty isto exoress an opinion on these financial siatements based on my ausit. | conducted my audit in accordance with the Pubic Audit Act of South Africa, 12004 (Act No, 25 of 2004) (PAA) the general notice Issued In terms thereot anc International Standards on Auditing. Those standards require that | comply with ethical Fequitements and pisn and perform the audt to obtain reasonable assurance about ‘whethor the financial statements are tree from material misstatement 4. An ausit involves performing procedures le abiain audit evidence about the amounis and disclosures in the financial statements, The procedures esiected depend on the auditor's judgement, including the assessment ofthe risks of material misstatement of the financial statements, whether due to fraud or eror. In making those risk ‘assessments, the auditor considers internal contrl relevant to the entity's preparation and flr presentation ofthe financial statements in order to design aut procedures that ‘are appropriate in the circumstances, but nat forthe purpose of expressing an opinion (on the effectiveness ofthe ently’ intemal contol. An audit also includes evelueting the ‘ppropriatonoss of accounting paicies used and the reasonableness of accounting pstimates made by management, as well as evaluating the averall presentation of the financial statements 5. [believe that the audit evidence | have obtained is euffcient and appropriate to provide 2 basis for my auelt opinion. Opinion 6. Inmy opinion, the financial statements present fail, in all material respects, the {inandéal positon of the Joa Gqabi Eeonamie Develapment Agency (Son) Lic as at 30 june 2018, and is financial performance and cash flows for the year then ended in laccordance witn South Afncan Standards of Generally Recognised Accounting Practice and the reauirements of the MFMA and DoRA, 7. | raw attention to the mater below. My opinion is not mocified in respect ofthis mater. Restatement of corasponding figures: As disclosed in note 20 to the financial statements, the corresponding fgures for 30 June 201? have heen resteted as a result of an error discovered during 2013 financtal year in the financial salements af the Jae Gabi Economic Development Agency (Sa) Lig at, and for the year ended, 80 June 2012, REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS 8. In accordance with the PAA and the general notice iasued in terms thereof, | report the following findings iclavsn! to performance against predetermined objectives, compliance With laws and regulations and interal conti, ful nl far the purpose of expressing em ‘opin. Pradetermined ot 10, | performed procedures to obtain evidence about the usefulness and reliability of the information in the annual performance report as set out on pages... to .. of the annust report ‘11, The reported performanos against predetermined objectives was evaluated against he overall criteria of usefulness and reliabilty. The usefulness of information in the annual performance report relates to whether it Is presented in accordance with the National ‘Treasury's annual reporting principles and whether the reported performance is consistent withthe plannod development objectives. The usefulness of information {urther relates to whether indicators and targets are moasurable (|e. well defined, vaifisbla, specific, measurable and time bound) and relevant ae required by the National Treasury's Frarewark for managing progrannane performance informatio. ‘The reliability ofthe information in respect ofthe selected development objectives is assessed to determine whether t adequately reflects the facis (Le. whether itis valid, accurate and complete) 12, The material findings are as follows Usefulness of information Consistency Reporied targets not consistent with planned targets 48. The Municipal Sysiems Act, soe 4(¢) requires that the annual performance plan thould form the basis for the annual regod, therefore requiring consistency of objectives, indicatore and targete between planning and reporting documents. A total of 100% (°20%6) ofthe reported targets ara not consistent with te targete a per the ‘approved annual performance plan. This is due tothe lack of review and oversight exercised by management to ensure that targets as included in the annual performance plen were reported. Measurability Performance targets not measurable 44, The Nolional Treasury's Fiemeawerk far mansging programme performance information (FMPP!) requires thal performance tages bu measurable, The required performance Could not be measured fora total of 100% of targets. This was due fo lhe fact thal rmanagentenl was nol aware ofthe requireznents of the FMPPI. Rela iy of information 15. The National Troasury’s FMPPI requires thet institutions should have appropriate systems to collec, collate, verity and store performance information to ensure valid, ocutale andl complete reparing of actual achievements against planned objectives, indicators and fargel The information presented with respect to selected development objective: Serve as a primary and principal vahicte for economic development and investment within Joe ‘Gabi District, was net relablo when compared te the source information andior uence provided ‘This was due tothe lack of accurate and complete reporting on indicators eet in the ‘annual performance pian because of a lack of monitoring controla associated with the ‘consistency of information and reporting on all relevant information Inthe annual performange repent ‘Compliance with laws and regulations 16. | perlormed procedures to obtain evidence that the entity had complied wlth anplleable flaws and regulations regarding tnancial matters, nancial management and other felated matters. My findings on male nan-complianess with epecifc matters in Koy applicable laws and regulations, 26 eel oul inthe ganeralnolicn issued in fetrns oF the PAA, are as follows: Annual financial statomonts, performance and annual report ‘7. The financial stetements submitted for auditing were not prepared in all material respects in accordance with the requirements of section 122 of the MFMA, Material misstatements identiNed by the auditors inthe eubmilled linancial statements ‘were not adequately corrected, which resulted in the financial statements receiving ‘qualified audit opinion, Budgets, 18. Monthly budget statoments were not submited to the accounting officer ofthe parent ‘municipal, as required by soction 87(11) of the MEMA, Internal contrat 18. | considered internal eonbal relevant lo my audi ofthe financial statements, the annual performance repert and compliance wilh laws and regulations, The matters reported below under the furdswnentals f internal control are limited ta the significant deficiencies that resulted in tha findings on the nau pertoxrance report and the findings on compliance with laws and regulations included inthis report. Leadership 20, Leadership hes not implemented effective human resource management to ensure that all key positions within the ently were filed throughout the year, which has resulted in Lndve reliance on othor key officials. Furthermore, actions plans were developed and impleronied but proved ineffective and inefficient in managing the risks associated with ‘compliance and reporting on pesformence information that is free from material ‘misstatement. Financial and performance management 21, The contrele necessary to underpin a reporting process that delivers regula, and complete performance information were nol developed or iniplorncni Furthermore, daly andl monthly pracessing and reconciliation of financial raneactione ‘sox al the parent nunicipalily through operations of the service level agreement, Reporting on periorarice information ws, however, reliant on controls instituted atthe ‘only and daes not benafit dict fram the synergies associated withthe financial sporting, The current controls in opsration atthe entity over daily and monthly [rocassing of performance information were not adequate and have resulted in material migstatemente of the reported performance information. 22. The contols instituted over the monthly reporting processed were not effective in ‘encuring that the monthly ceparts eubmited to the accounting officer of the parent municipalty were compiled meously, This has resulted in a recurring non-compliance: finging in tie current year Governance 23, Risk management strateaies and actions plans developed by management were not effective in Identifying al Instances of emeraing risks associated withthe expanding neture end scope of operations of tho entity. This has resulted in key rske rot being ‘adequately addressed with the development and implementation of key cankros, thereby resuting in non-compliance and material misstatements in financial and performance informatian, 24, The reported findings by internal audits well as thor recommondaions have nol been effectively implemented la ensur thal non-camplianee and findings on pertormance Information ware adequately addressed in terms of the emerging risk ascocialeu wil, sustainable reporting, The effectivenss of the sul commas is also diminished because reports on previelermined oljeeivas and financial information submitted were vol fas from malarial misstatements, which datracted trom their abiity to add adkitional value had reports been relevant and reliable. ‘This nas resulted inthe misstatements in performance andi financial nfermation and non-compliance not being detected or corrected, hanced ast London ‘30 November 2013 ‘Aust bud publ: sarklence