Table Of Content

Report of the auditor-general to the Eastern Cape Provincial Legislature and the Council on Great Kei Local Municipality Report on the financial statements Introduction 1. Ihave audited the frnciel statements of the Great Kei Local Municipality set out an pages to. which comprise the statement of financial postion ae st 30 June 2016, tho statement of financial performance, slalererl of changes in net assets, cash tow slalemant and stalamant of camgarison of budget and actual amounts for the year then ended. as well as the notes, comprising m summary af signifaant accounting policies ant otter explanatory infomation. Accounting officer's responsibility for the financial statements 2, The accaurting officer Is responsible for me preparation and fair presentation of thes financial steternents in accordance with lie Sulh African Standards ct Gonerally Recognised Accounting Practice (SA standards of GRAP) and the requiremenis of the Municipal Finance Management Act of South Africa, 2003 (Act No 55. of 2003) (RIFI1A) and the Division cf Revere Act of Sculh Africa, 2018 (Act Ne 1 of 2075} (DoRA}, and ‘or such inlainal conta! a8 the accounting oficer determines is necessary to erable the preparation of financial statements thal are fras from matorial misetatement, whether due te fraud or errr Ausitor-general’s responstblllty My tespransiiliy is lo express an opinion on these financial siatements based on my aul | conducted my aucit in accordance wih Inlernalional Standards on Aucting. Those slancerde require that | comply with ethical requirements, and plan and gerior the audit ‘0 ablain reasonable assurance about whether the financial slalemonts are fee from ‘materal misstatement. 4. An aut involves performing pracedures to obtain audit evidence about the amaunis and disclosures in the financial statements. Tne procedures selacted depend on the auditor's judgement, including tha assessment of the risks of material misstatement cf the financial statements, whether due te fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial siatemerts in order to design audit procedures that are appropriate in the ‘erournstances, but net for the purpose of expressing an opinion cn the effectiveness of the entty's internal contol, AN audit alse inciudes evaluating the appropriateness of accounting policies used and te reasonableness of agcourting estimates made by management, as nel as evaluating the overall prasenlalion of the Mancial statements, 5. | believe thal te auc evidence | have obtained is suticient and appropiste to provide @ basis for my aueit opinion Opinion 6. In my opinion, the fisancial statements present fairly, in all matorial respet pasion of the Great fs the financial Local Municigalty as st 30June 2016 and its financial performance and cash flows for the year then endec, in accordance with the SA Standards (of GRAP gnd the requirements of the MFMA anc DoRA Emphasis of matters 7. [draw allenlian to tre matters below. My opinion is not modified in respect of these matters. Material losses ond impairments 5. As disclosed in note 44 (0 the financial statements, material losses ta the amount of 2.85 milion were incurred a8 a result of distrbuion losses in the prov sion of electity. In addition, materisl deht impsirments of R90,12 miler and R37 million on receivables ftom exchange and ion-exchange vansactions respectively were disclosed in nole 4 and 6 to tho financial staternents, These arose from the poor expactes recoverability of receivables, irregular expencitu 9. As siscloved in note 42 to the finsneiel siatemerts, inogular expenditure of R2,77 million ‘was incurred iv the current year due ta non-compliance with procurement presents and regulations. In addition, a write-ot of recular expenditure ameunting lo R3,27 milion was approved by council in the current yaar. Unauthorised expenditure 10, As disclosed In note 49 1 tho financial statements, unauthorsed exnendiure of 6,11 milion was incurred in the current year due to the overspencing of the muricipal ‘council and municigal manager's vote. A wite-cff of unauthorised expensiture amounting to R25, millon was appraved by council in the curent year. Restatement of corresponding figures 11, As disclased in note 36 to the financial statements, the corresponding figures for the 30 June 2015 have been restated as @ resuil of arrors only ciscovered during the year ended 430 June 2016. Additional matter 12, | era attention e the matter below. Mi opinion is not modified in respect of this mater. Unaudited disclosure netes 48. In lerms of section 1251206) ef the MFMA, the municigalily is required Io disclose patioulars of non-comelianee with this legielaton. This disclosure recuiramant cid not form part of the audit ofthe financial sialemenls and accorcingly we do not exoress an opinion Inereon, Report on other legal and regulatory requirements 14, In accordance with the Public Audt Act of South AVfica, 2004 (Acl No. 28 of 2004) (PAA tnd the general novice fesuad in tame thereof, | have a responsibility te report findings on the reported gorlomance information against prevelermines objectives of solocted objectives presented in the annuel performance repor, compliance with legistion anct intereal contol. The objective of my tests was to identy reportable findings as cescrbed Under each subheading but notte gather evdenca lo express assurance on these matters ‘Accordingly, | do nel exaraes an opinion or conclusion on these matters. Predetermined objectives 15. | performed pracedures le oblain evidenoe about the usefulness and relabiliy of the reported perfarmance information of the selacled cijuclive 1: Service delivery anc infrastructure provision, presented in pages x fo x of the annul performance repor! of the ‘municipality forthe year ended 39 June 2016. 16, Levalvated the uselulnese of he reported porformance infomation to determine wetter il was presented in accordance with the National Treasury's annual reporting rvineipies and whether the reported performance was consistent wilh Ihe planned abjectves. | further performer! lasts lo catarnine whather incicators and targels were well defined, verifiable, specific, measurable, time bound and relevant. as required by the Natioral Treasury's Framework for managing programme performance invormation {FMPPI} 17, | geseseed the reliability of the reported performance information to determing whether it ‘was valid, aecurste and complete. 18, I did nol ideniy eny material fingings on the usefulness and reliatilily of the rezoriad parfermanee informatin for abjective 1; Service delivery end infrastructure provision Additional matter 419, Alnough | idantfied na material findings on the usefulness and relablity of the reported performance information for the selected objectives, | draw attention to the following ator: Achievement of planned targets 20, Refer to the aanual performance report on gages x lo x far infermation on the achievement of the planned targets forthe yeer, Compliance with legislation 21. | performed procadures to oblain evidenoe that the municipality had complied with applicable legislation regarding financial matters, financial management and other retated matters, My material findings on compliance with specific matters in key legislation, as set fut in the ganeral notice issued in terms of the PAA, ere as follows: Annual financial statements, performance and annual reports 22. The financial slulemenis submittad for auciting were not prepared in all material respects In accordance with the requirements of section *22 of the MFMA. Matorial misststements fof non-current assets, current assets, liabities and disclosure items idenliiee by the audiors in the suomitted financial statement were subsequenly corrected and the supporting records were provided subsequently, resulting in the financial statements receiving ar ungusliied auc opinion Expenditure management 23. Money owed hy the municipalily was not always pald within 30 days, 9s requrad by secon 68{2)(6) of tho NFB. 26, Reasonable steps were not taken to prevent irrsgular, frutless and wasteful and unauthorised expenditure, 86 required by section 62(1j{4) of the IFA, Consequence management 25. Allegations were not always investigated, as required by section 5(2) of the Discipinary regulations for senior managers, and soction 17 1¢4) ofthe MFMIA. 26, Allegations of financial misconduct tai¢ against officials of the municipality were not investigated in accordance with the roquirements of section 5(4) of the Municipal regulations on financial misconduct procecures and criminal procaadings. Internal control 27. | eonsidered internel control relevarl to my aucit of the financial statements, the annual performarige repart and compliance with legislation, The mallers reported below are limited ‘the significant intemal control deficiencies thal resulted in the Aincings on corplisn With legislation includ’ in this report Leadership 28, Oversight bodies did not eneure proper menitoring was place al he municipality and thorafore wore unable fa timeausly identity areas of concern that roquired the application of conective measures, This includes the, proper monitoring of adherence to policies and procetlures and oversight is therefore nal considered effecive. In addlion, the audit action plan was only parislly effective in ensuring a strong contro! environment exists al the ‘municipality, as ine underlying intomal coatrol defcencies identified in the prior yoar sil exist in 2 number of areas with respect to the financial snd compliance systems. Furhernore, consequence management was rot adequately applied al the municipally vwhare allegations of ransgressions were not fully investigated in the current year Financial and performance management 29. Daly and menthly disciplines are not adequately maintained at the municipality. Although these processes and procedures have been established, there is a lack af proner ‘monitoring controls ‘0 ensure that these actvties are actually ocourring end that they conectly performed. The misstatements identified in the currant year’s suernited ‘nancial statements, although corected through the auslt process, indicate that these standardised systems and activites are aot fuly established within the municioality. This incluces the financial statement preperation plan, which was nal adequately adhered ‘0, resulting in material misstatemerts that should have been idertfied through a prope’ process of review. In addin, the lurnaround plans to address IT deficioncias previously roaorted ware te0 slow fo ensure the contro! environment is operating optimally Governance 90, The risk asseveiment performee in the currant year by Infernal audit, and mortored by the audit committee, was not adequate to mitigate all the risks the munic pally is suaject to. 35 ‘material misstatements stl existed inthe submitted financial statervenis and malerial nan- complanoa was idenifiad in the curent year. Internal audit and te audit committee performed a review of the financial statements, but did nol identiy the misstatements and ‘omssions in dsclosuree identified during the audit process Est London 0 November 2016