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Engcobo Municipality Audit Report For the year ended 30 June 2048 Report of the auditor-general to the Eastern Cape Provincial Legislature and the council on the Engcobo Local Municipality Report on the financial statements Introduction 1, [have audlted the financial statements ofthe Engcobo Local Municipal set out on pages ...t0.. which compra the slatement of financial postion as at 30 June 2018, the statement of financial performance, statement of changes in net assets, cash flow statement and the statement of aomparison of budgel and actual amounts for tha ysar then ended, as well a the notes, comprising a summary of significant aveounting policies and other explanatory information. Accounting officer's responsibility for the financial statements 2, The accounting aficer is responsible far the preperallon and fair presentation af these financial sfaements in accordance with South African Standards of Generally Recognised Accounting Pactioe (SA standards of GRAP) and the requiramants of the ‘Municipal Fnenoe Management Act of South Afiea, 2003 (Acl No. $6 af 2003) (MFMA) and the Dislan of Ravenue Act of South Afiog, 2014 (Act No. 10 of 2074) (DORA}, and for ‘such intemal control as the accounting officer determines is nsosseary te enable the preparation of financial elatements thal are tree from matetal mlestatements, whether dus to fraud or error. Auditor-general’s responsibility 3, My rosponsbilly Isto express an opinion on these financial statements basad on my audit, eanducted my auditin accordance with International Standards on Audling, ‘Those standards require that| comply with ethical requirements, and plan and perform the audit 10 obtaln reasonable assurance about whather the financial siatements are (hee fiom material misstalemert. 4. An audit involvea performing procedures to obtain audit evidence about the amounts ‘and disoloaures Inthe financial saternents, The proveduras selected depend on the ‘audlior’s judgement, including the aesersmant ofthe risks of material misstatement of tha financial stalernents, whether dua to fraud or error. In making those risk assessments, the auditor conelders internal cantrl relevent fo tha muntcipalty's prepateton and (air presantation of the fhanclal statements in order to design audit procedures that are appropriate In the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the muricipaliy's Imernal contol. An audit ‘leo includes evaluating the appropriateness of accounting polices used and the reasonableness af accounting estimatas made by management, as well as evaluating the overall presentation ofthe financial staternents, 5, [bellave that the audit evidence | have abtained is sufficient and appropriate to provide a basis for my audit pinion, Opinion 8. Inmiy opinian, the Rnancialstalements prasent fry, in all material respects, the financial postion of the Engeobo Local Municipaliy as at 30 Jume 2016 and is financial Parformenea andl cach flows [or the year then ended, in socordance with SA standards. of GRAP and the requirements ofthe MEMA and Does, Additional marcers 7. draws attention to the matters below. My opinion is nat masifled In respect of these mates Unaudited supplementary informacion 8. The eupplamantary information ast out on pages XX to XX does nat form part of the financial statements and Is presented as addlional information. [have act audited these schedules and accordingly | do not axpiess an opinion theraon. Unaudited disclosure notes 9. Interms of section 125¢2)(} the MFMA, the municipal is required io disclose patlcaars of non-compliance with his legislation. This discisure requirement did not form part ofthe audit ef the tinancal statements and accoralily | de not expreas an pinion thereon, Report on other legal and regulatory requirements 40. Inaccordance with the Public Audit Act of South fica, 2004 (Act No. 26 af 2004) {PAA) and the general notce issued in terms thereof, Ihave a responsibil to report findings tn the reparled nerlormance informetion against predetermined cbjactives for selected {development proriies presenied in the annual performance repor, cornpllance with legislation and internal conisol The objective of my tests was to identify reportable ‘indlngs as described under each eubheading, but not to gather evidence to express assurance on these matters. Accordingly, Ida not exprses an opinion or conclusion on these matters Predetermined objectives 11, | performed procedures to obtain evidence about the ussfulnass and rally ofthe reporied parformencs information forthe following selected development priarities presented in the annual parlormanea report of the municipality forthe year ended 30 June 2015: + Bale sarvica dellvery and infrastructure on pages x10 x 12, Yevaluated the reported performance informalion agains! the everal criteria of Usefulnese snd ratiabilty, 18. | avaluated the usefulness of the reported performanes Information ta determine ‘whether il was presented in acoordance with the National Treasury's annual repoding principles and whether the reported performance was consistent with the planned ddovelopmant proctiss. | furher performed tests fo determina whalher Indlestors and targets were wall defned, veritable, sparnitic, measurable, me bound and ralavard, 2 required by the NaGional Treasury's Framawark for aeanaging progremme performance ‘oformation (FMPPI). 14, {assessed the rliabilty of tha reporied performance information fo determine whethar it wes valid, accurate and complete, 15. | did not raise any materi findings on the usefulness, however the material findings on the relabity of the reported perfomance Information for the selected programmes were subesquently adjusted. Additional matters 16. | raw allention tothe folowing matters: Achievernert of planned <argets 17. Refer to annus! performance report on page(s) X to X for information on the achievemant ofthe planned targets forthe year Adjustment o” material rissaterrents 18, | identified material misetatemenis In tha snnusl performance repert submitted for ‘auciting on the reparted performranca information for Basie Sarview Delivery and Infraslructure, As management subsequenly corrected tha misstalamants, | €id not identity material fncings on the usefulness and reliablity of the reparted performance information Unaudited supplemertary ‘rfo-matior 1B, The supplementary information set out on pages XX to XX does not form part of the annual performance report and is presented as additional informatinn, | have not audited these schedules and, accordingly, 1 do not report thereon, ‘Compliance with legislation 20. | performed procedures to obtain evidence thatthe municipality had complied with applicable legislation regarding fnanclal maliere, financial management and other related matters. My material fndings on compliance whh spactie matters in key legislation, es sel out in the general notice issued in tarms af the PAA, ara ae fellows: Arnual firanc al stacements, pe-formance aad annual report 21. The financial statements submitted for auciting were not prepared in ll material respects in accardanes with the requirements of section 122 of the Municipal Finance Management Act, 22. Material misstatements Wantiiad by the auditors in the submited Financial statemants ware subsequently comected, which resuled in Ihe finenciel statements receiving an Lunqualifed aut opinion. Asset management 28. An adequate management, secounting and information system which accounts for ‘assets wes nat in piace, as requlred by sactlon 63(2)(a} of tha Municipal Finance Management Act Revenue management, 24, Interest was not charged on all accounts in amears, as required by suction 64(2}(q) of the Municipal Fiance and Management Ad Expenditure management 25, Reasonable steps were not taken lo prevent fuiless and wasteful expenditure, as requited by section €2(1 (4) of the Municipal Finance Management Act Internal contro! 26. | considered infernal control relevant to my aust at the finanelalstatamenta, annual performance report and compliance with legislation. The matters reparted below ars limited ta the significant internal conta deficiencies that resulted inthe findings on the _annual parformance report and compliance with legislation included inthis report. Leadership 27. The municipality did not establish and communicate polcles and precadures to enable and support underslanging and execution of internal control objeclves, processes and responsibiliies. Also. they did not establish IT governance olcies and procedures that support and enables the business to improve performance, Financial and performance management 28, ‘The municipality continued to make use of consultants ta parform nancial and perfonmanea reporting functions that shouki be performed by the staff employed by the ‘municipality. This s due tp a lack of skill in key positions. In addition, manual reconciliations of accounting records and supporting echedules are raquired at year lend, because these controls are nat performed an a regular basis during tha year. ‘Should adequate monitoring, supervision and controfs be implementad, these ‘miestatements would be identified and corrected by management timeculy 29. The financial statements and annual performance report submitted for eudit purposes contained misstatements. Furthermore, errors hetween the financial statements, generat fedger and underiying supporting dacumanis were identified, This is 2s a reault fron mplomentation of adequate review mechanisms lo ansure that the raport on predetermined obleclives ard the annual financial statements are reviewed for accuracy ‘and complatanass pri ta submission for tha sult purposes, Governance 30. The municipality did not implement appropriate isk managament activities to ensure that regular fk assessment, including consideration of IT risks and fraud prevention, are conducted and thata risk slalagy to address the risks is develaped and monitored. 1. The intornal aust and audit committee did not property review the financtal and perfarmanca report prar lo submission fo the extemal aucitors-and also did not ‘loquately review compllance with laws and ragulations, as here were still a number of ‘metedal mistslornants identified through the aud process. Aiditor- Generot East Landon 30 November 2015 “e > Aucing 2 bul ble conhidoner